£  H  m . 


4 


AMERICAN  SCIENCE  SERIES.— ADVANCED  COURSE. 


POLITICAL  ECOIOMY 


FRANCIS      .  WALKER 

President  of  the  Massachusetts  Institute  of  Technology, 

AUTHOB  OF  "THE  WAGES  QUESTION,"  "MONEY,"  "MONEY.  TBADB 
AND  INDUSTBY,"  "LAND  AND  ITS  BENT,"  ETC. 


THIRD  EDITION,  REVISED  AND  ENLARGED. 


NEW  YORK 
HENRY  HOLT  AND  COMPANY 

1888 


COPYRIGHT,  1887, 

BY 
HENRY  HOLT  &  CO. 


THE  MER8HON  COMPANY  PRESS, 
RAHWAY,   N.  J. 


CONTENTS. 


PART  I. 

CHARACTER  AND  LOGICAL  METHOD  OF  POLITICAL  ECONOMY, 


PAGE. 

1 


PART  II. 

PRODUCTION. 

CHAPTER  I.  LAND  AND  NATURAL  AGENTS,    -       - 

"      II.  LABOR,  _..___. 

"    III.  CAPITAL  :  ITS  ORIGIN  AND  OFFICE,  -- 

"     IV.  THE  PRODUCTIVE  CAPABILITY  OF  A  COMMUNIT* 


33 

4.4, 

61 

69 


PART  III. 

EXCHANGE. 

CHAPTER  I.  THE  THEORY  OF  VALUE,     ----- 

"      II.  THE  THEORY  OF  INTERNATIONAL  EXCHANGES, 

"    III.  MONEY  AND  ITS  VALUE,       ----- 

"     IV.  MONEY  AND  ITS  VALUE  —  (Continued.')  — 

DEBASED  COIN  :  SEIGNIORAGE  -       - 

"      V.  INCONVERTIBLE  PAPER  MONEY, 

"     VI.  BANK  MONEY,        - 

*f  VII.  THE  REACTION  OF  EXCHANGE  UPON  PRODUCTION- 


73 
111 
120 

143 
152 
166 
171 


CHAPTER  I. 
"  II. 
"  III. 


PART  IV. 

DISTRIBUTION. 

THE  PABTIES  TO  THE  DISTRIBUTION  OF  WEALTH, 

RENT,      - 

INTEREST,   ..... 


187 
193 
218 


VI  CONTENTS. 

CHAPTEB  IV.  PROFITS,       -  232 

"          V.  WAGES, -245 

"        VI.  WAGES   CONTINUED  :    THE  CONDITION    OF  THE  LABOBING 

CLASS,  AS  AFFECTED   BY  IMPEBFECT  COMPETITION,  258 

"       VII.  Two  OTHER  SHARES  IN  DISTRIBUTION,        -  272 

"     VIII.  THE  REACTION  OF  DISTRIBUTION  UPON  PRODUCTION,     -  279 


PART  V. 

CONSUMPTION. 

CHAPTEB  I.    SUBSISTENCE  :  POPULATION,      -------  292 

"     II.    THE  APPEARANCE  OF  NEW  ECONOMIC  WANTS,     -  305 

"    III.     CONSUMPTION  ;  THE  DYNAMICS  OF  WEALTH  ;  THE  EEACTION 

OF  CONSUMPTION  UPON  PRODUCTION,      -       -       -       -  314 


PART  VI. 

SOME  APPLICATIONS   OF  ECONOMIC  PRINCIPLES. 

1.  USURY  LAWS,     ---  _--____  330 

2.  INDUSTRIAL  CO-OPERATION*,  -  341 

3.  POLITICAL  MONEY,     -        -  -  351 

4.  PAUPERISM,     -----  -  359 

5.  THE  DOCTRINE  OF  THE  WAGE  FUND,       -------  354 

6.  THE  MULTIPLE  OR  TABULAR  STANDARD,      -        -  371 

7.  TRADES  UNIONS  AND  STRIKES,         --------  375 

8.  THE  KNIGHTS  OF  LABOR,      -       -  384 

9.  ATTACKS  ON  THE  DOCTRINE  OF  RENT,  -  394 

10.  NATIONALIZATION  OF  THE  LAND,  407 

11.  THE  BANKING  FUNCTIONS,        -  ._--..-  433 

12.  THE  NATIONAL  BANKING  SYSTEM  OF  THE  UNITED  STATES,        -        -      439 

13.  FOREIGN  EXCHANGES,        ----------  443 

14.  BI-METALLISM,       -----------      463 

15.  THE  REVENUE  OF  THE  STATE,          --------  475 

16.  TAXATION, --488 

17.  "PROTECTION"  vs.  FREEDOM  OF  PRODUCTION,       -----  505 

18.  SOCIALISM,      ------------      517 


POLITICAL    ECONOMY 


POLITICAL   ECONOMY. 


PART  I. 

CHARACTER  AND  LOGICAL  METHOD  OF   POLITI- 
CAL ECONOMY. 

1.  What  Political   Economy  is. — Political  Economy,   or 
Economics,  is  the  name  of  that  body  of  knowledge  which 
relates  to  wealth. 

Political  Economy  has  to  do  with  no  other  subject,  whatso- 
ever, than  wealth.  Especially  should  the  student  of  econo- 
mics take  care  not  to  allow  any  purely  political,  ethical  or 
social  considerations  to  influence  him  in  his  investigations. 
All  that  he  has,  as  an  economist,  to  do  is  to  find  out  how 
wealth  is  produced,  exchanged,  distributed  and  consumed.  It 
will  remain  for  the  social  philosopher,  the  moralist,  or  the 
statesman,  to  decide  how  far  the  pursuit  of  wealth,  according 
to  the  laws  discovered  by  the  economist,  should  be  subordin- 
ated to  other,  let  us  say,  higher,  considerations.  The  more 
strictly  the  several  branches  of  inquiry  are  kept  apart,  the 
better  it  will  be  for  each  and  for  all. 

The  economist  may  also  be  a  social  philosopher,  a  moralist, 
or  a  statesman,  just  as  the  mathematician  may  also  be  a 
chemist  or  a  mechanician  ;  but  not,  on  that  account,  should 
the  several  subjects  be  confounded. 

2.  Political  Economy  does  not  Inculcate  Love  of  Wealth. 
— Because  political  economy  confines  itself  to  discovering  the 
laws  of  wealth,  it  has  by  some  been  called,  derisively,  the 
Gospel   of   Mammon.     In    reply  to   this   sneer   it  would  be 
enough  to  say  that,  while  wealth  is  not  the  sole  interest  of 


2  POLITICAL   ECONOMY. 

mankind,  it  is  yet  of  vast  concern,  of  vital  concern,  to  indi- 
viduals and  to  communities.  As  such,  it  deserves  to  be 
studied.  Now,  if  it  is  to  be  studied  at  all,  it  will  best  be 
studied  by  itself.  The  easiest  and  surest  way  to  increase  our 
knowledge  of  any  subject  is  to  isolate  it,  and  investigate  it,  to 
the  strict  exclusion,  for  the  time,  of  all  other  subjects. 

But  more  may  be  said.  Political  Economy  does  not  incul- 
cate love  of  wealth.  It  simply  inquires  how  that  passion,  or 
propensity,  in  the  degree  in  which  it  exists,  does,  in  fact, 
influence  the  actions  of  men.  Political  Economy  has  no 
quarrel  with  passions  or  propensities  which  may,  in  a  greater 
or  less  degree,  supplant  the  love  of  wealth.  It  does  not 
assume  to  sit  in  judgment  on  human  conduct  ;  It  exercises  no 
choice  among  human  motives  ;  It  simply  undertakes  to  follow 
causes  to  their  effects  in  one  single  department  of  human 
activity,  viz.,  the  pursuit  of  wealth. 

3.  Political  Economy  Tempers  the  Passion  for  Wealth. — 
So  far  from  ministering  to  greed,  it  would  be  easy  to  prove 
that  the  study  of  Political  Economy  has  tended,  by  showing 
how  wealth  is  really  best  gained  and  kept,  to  banish  a  raven- 
ing, ferocious  greed  which  seeks  to  snatch  its  objects  of  desire 
by  brutal  violence,  at  whatever  cost  of  misery  to  others,  and 
to  replace  this  by  an  enlightened  sense  of  self-interest,  which 
seeks  its  objects  through  exchanges  mutually  beneficial,  and 
which  supports  social  order  and  international  peace  as  the 
conditions  of  general  well-being. 

Political  Economy  does  not  plant  the  love  of  wealth  in 
human  minds.  It  finds  it  there,  a  strong,  native  passion, 
which,  but  for  enlightened  views,  is  likely  to  break  out  into 
private  rapine  and  public  war.  A  little  more  than  one  hun- 
dred years  ago,  before  Adam  Smith  published  his  great  work, 
"  The  Wealth  of  Nations,"  it  was  a  maxim  of  public  policy,  that 
only  one  party  to  trade  could  profit  by  a  transaction,  and  that 
all  which  one  party  might  gain,  the  other  must  lose.  Out  of 
this  root  grew  wars  and  commercial  restrictions  which  set 
man  against  man,  and  nation  against  nation,  making  the 
intercourse  of  even  the  most  civilized  states  a  game  of  deceit 
and  violence.  Adam  Smith  left  the  love  of  wealth  in  human 


DEFINITIONS.  3 

minds,  not  rebuked  but  enlightened.  Little  more  than  a 
century  has  elapsed,  jet  mankind  have  made  greater  progress 
toward  humane  and  mutually  advantageous  international 
relations  in  that  time  than  during  all  the  other  centuries  of 
human  history. 

4.  But  What  is  Wealth,  ?— Economists  have  found  much 
difficulty  in  defining  Wealth  ;  and  not  a  few  writers,  espe- 
cially of  late,  have  chosen  to  abandon  the  word  altogether. 

Several  of  these  have  called  Political  Economy  the  Science 
of  Exchanges.  But  the  use  of  this  term  only  removes  the 
essential  difficulty  of  the  subject  one  stage  further  away. 
Exchanges  of  what  ?  All  human  life,  in  society,  is  made  up 
of  exchanges,  in  feeling,  word  and  act.  The  family  relation, 
the  neighborhood,  the  State,  the  Church,  imply  an  unceasing 
exchange  of  sympathies,  activities  and  incentives,  only  a 
portion  of  which  are  within  the  view  of  the  economist. 

If  we  say  exchanges  of  wealth,  we  have  not  escaped  the 
difficulty  of  defining  Political  Economy,  since  we  have,  all  the 
same,  to  tell  what  wealth  is.  If  we  say  exchanges  of  services, 
we  must  further  explain  what  sort  of  services  we  mean, 
since  there  is  an  infinitude  of  services  of  man  to  man, 
in  a  great  variety  of  relations,  with  which  Political  Economy 
can  claim  to  have  nothing  to  do.  The  services  of  parents  to 
children,  of  children  to  parents,  of  children  to  each  other,  of 
friend  to  friend,  do  not  form  any  part  of  the  subject  matter 
of  Political  Economy. 

If  we  say  economic  services,  we  have  still  to  define  the 
scope  of  the  word  economic  :  that  is,  we  are  back  again  at 
the  point  from  which  we  started. 

5.  The  Term  a  Popular  One. — The  substitute  offered  for 
the  term  wealth,  in  describing  the  field  of  Political  Economy, 
proving  thus  defective  let  us  see  what  we  can  do  with  the 
word  so  long  in  use. 

Wealth  is,  as  Prof.  Price  justly  observes,  "  the  word  which 
belongs  to  the  world  which  Political  Economy  addresses."  It 
would,  therefore,  be  a  matter  of  regret,  were  it  to  be  aban- 
doned unnecessarily.  When  the  man  of  business,  the  laboring 
man,  even  the  man  of  leisure,  is  told  that  Political  Economy 


4  POLITICAL  ECONOMY, 

is  the  science  of  wealth,  he  at  once  feels  drawn  to  the  subject. 
No  one  is  above,  few  are  below,  an  interest  in  the  subject. 
But  the  term,  science  of  exchanges,  is  not  especially  attract- 
ive. A  banker,  deeming  that  "  foreign  exchanges  "  are  meant, 
may  at  first  think  himself  concerned  ;  but  will  discover  his 
misapprehension  when  he  opens  the  book.  The  great  majority 
of  people  will  doubt,  on  hearing  the  title,  whether  they  care 
much  or  any  thing  about  the  science  of  exchanges. 

Since,  then,  so  great  popular  interest  attaches  to  the  word, 
wealth,  it  would  be  a  pity  to  lose  the  use  of  it  without  good 
reason. 

6.  Yet  Subject  to  Scientific  Uses. — And  we  note  that  the 
conception  of  wealth  formed  by  men  who  are  not  students  of 
Political  Economy,  is  clear  and  well-defined.  It  is  only 
scholars,  when  they  begin  to  talk  and  write  about  wealth,  who 
find  any  difficulty  in  the  use  of  the  word.  Stop  a  dozen  men 
in  succession,  and  ask  them  what  constitutes  wealth,  and  you 
will  find  an  almost  perfect  agreement.  "  Every  one,"  says 
Mr.  John  Stuart  Mill,  "  has  a  notion  sufficiently  correct  for 
common  purposes  of  what  is  meant  by  wealth.  The  inquiries 
which  relate  to  it  are  in  no  danger  of  being  confounded 
with  those  relating  to  any  other  of  the  great  human 
interests." 

Moreover,  if  we  inquire  what  is  the  difficulty  attributed  to 
the  use  of  the  term,  we  find  that  it  relates,  not  so  much  to  the 
definition  of  wealth,  as  to  the  formation  of  a  catalogue  of  the 
articles  which  make  up  the  wealth  of  an  individual  or  com- 
munity. 

Now,  it  is  not  important  that  such  a  catalogue  should  be 
formed.  It  would  not  even  be  fatal  to  a  definition  of  wealth 
that  certain  objects  should  be  found  which  seemed  to  fall 
across  the  line  of  demarkation.  All  definitions  in  Political 
Economy,  as,  indeed,  in  the  natural  sciences,  are  subject  to 
this  condition.  Few  naturalists  will  presume  to  say  just  where 
the  vegetable  kingdom  ends  and  the  animal  kingdom  begins. 
There  are  objects  in  nature  concerning  which  it  would  puzzle 
the  most  learned  scholar  to  say  whether  they  are  animal  or  vege- 
table. Yet  we  do  not,  on  that  account,  hesitate  to  say  that  a. 


DEFINITIONS.  5 

tree  belongs  to  the  vegetable,  and  an  elephant  to  the  animal 
kingdom. 

7.  Relation  of  Wealth  to  Value. — Wealth  comprises  all 
articles  of  value  and  nothing  else.     If   any  thing  have  not 
value,  it  does  not  belong  to  this  category.     It  may  conceiv- 
ably be  better  than  wealth  ;    but  it  certainly  is  other  than 
wealth.     It  may  become  a  means  of  acquiring  wealth  ;  but  it- 
is  not  wealth  itself.     In  the  language  of  Prof.  N.  W.  Senior, 
"  the  words  wealth  and  value  diifer  as  substance  and  attri- 
bute.     All   those  things,  and   those   only,   which   constitute 
wealth,  are  valuable." 

8.  But  What  is  Value  ? — Value    is  the   power   which    an 
article    confers    upon    its     possessor,    irrespective     of    legal 
authority  or  personal  sentiments,  of  commanding,  in  exchange 
for  itself,  the  labor,  or  the  products  of  the  labor,  of  others. 
Briefly  and  somewhat  elliptically  speaking  :  Value  is  power 
in  exchange. 

We  say  :  irrespective  of  legal  authority.  The  Emperor  of 
Germany  can,  by  a  word,  call  two  millions  of  men  from  their 
homes  and  send  them  to  distant  fields,  even  to  foreign  lands, 
to  work,  to  watch,  to  march,  to  fight  and  to  die.  Yet  these 
services  are  not  economic,  because  not  voluntary.  On  the 
other  hand,  the  services  of  a  soldier  in  the  British  army  are 
economic,  as  they  are  rendered  under  the  terms  of  a  voluntary 
enlistment,  the  result  of  a  fair  and  open  bargain  between  the 
crown  and  the  subject. 

We  say  also  :  irrespective  of  personal  sentiments.  The 
mother  hangs  over  the  sick  bed,  day  and  night,  draining  her 
very  life  blood  to  save  her  child.  Her  services  are  not  eco- 
nomic, because  dictated  by  a  purely  personal  sentiment.  On 
the  other  hand,  the  work  of  the  hired  nurse  and  of  the  feed 
physician  comes  fairly  within  the  view  of  the  economist. 

9.  Transferability  Essential  to  Value. — We    note   that 
exchange  implies  two  exchangers.     Value  is,  then,  a  social 
phenomenon. 

But  exchange  implies,  also,  the  capability  of  detaching  from 
the  present  possessor  the  articles  to  be  exchanged,  and  making 
them  over  to  another. 


6  POLITICAL   ECONOMY. 

Do  health,  strength,  intelligence,  skill,  possess  this  capabil- 
ity ?  Are  they  wealth  ?  Have  they  value  ? 

Not  a  little  of  the  difficulty  which  has  attended  the  use,  in 
economics,  of  the  word  wealth,  has  arisen  from  attributing 
value  to  such  properties  or  possessions  as  these.  Prof.  Alfred 
Marshall,  in  his  admirable  work,  "  The  Economics  of  Indus- 
try," even  includes  honesty  in  the  "  personal  wealth  "  of  a 
country. 

But  let  us  apply  the  test  of  our  definition.  Can  these 
possessions  or  properties  be  exchanged  ?  Can  health,  strength, 
intelligence,  skill,  be  detached  and  become  the  property  of 
another  ?  No  ;  they  can  be  taken  away  from  one,  as  by  sick- 
ness or  death  ;  but  they  can  not  be  made  over  to  any  one  else. 
The  gouty  millionaire  can  not,  with  all  that  he  has,  purchase 
the  robust  health  of  the  laborer  by  the  wayside,  or  buy  for 
his  empty-headed  son  the  learning  or  the  trained  faculties  of 
the  humblest  scholar.  Hence,  all  that  which  some  economists 
have  called  intellectual  capital,  and  all  that  which,  by  analogy, 
might  be  called  physical  capital,  are  to  be  excluded  from  the 
category  of  wealth. 

1O.  Better  than  Wealth,  but  not  Wealth. —  Those  posses- 
sions or  properties  have  seemed  to  be  things  so  desirable  in 
themselves,  so  much  to  be  preferred,  in  any  right  view  of 
human  welfare,  that  excellent  writers  have  not  been  able  to 
bring  themselves  to  leave  them  out  of  the  field  of  economics. 
But  Political  Economy  is  the  science,  not  of  welfare,  but  of 
wealth.  There  may  be  many  things  which  are  better  than 
wealth,  which  are  yet  not  to  be  called  wealth.  A  good  name 
is  rather  to  be  chosen  than  riches,  and  loving  favor  than 
silver  and  gold  ;  yet  a  good  name  is  not  riches,  and  loving 
favor  is  neither  silver  nor  gold. 

Here  the  popular  understanding  of  the  word  coincides  with 
the  definition  given  for  scientific  purposes.  Plain  men  do  not 
speak  of  such  qualities,  or  endowments,  as  being  wealth.  No 
merchant  or  manufacturer  or  laboring  man  would  include  any 
one  of  these  items  in  an  account  of  his  wealth,  however  pre- 
cious he  might  esteem  them. 

And  it  is  to  be  noted  that  it  does  no*,  matter  whether  the 


DEFINITIONS.  7 

incapacity  to  detach  and  make  over  a  possession  to  another, 
arises  from  the  nature  of  things,  as  in  the  case  of  personal 
health  and  strength,  skill  and  intelligence,  or  from  the  con- 
straints of  law  or  public  opinion.  In  Circassia,  a  beautiful 
daughter  is  wealth,  and  is  popularly  so  accounted.  *  No  one  in 
making  up  the  list  of  his  wealth  would  omit  this  item,  any 
more  than  he  would  leave  out  his  horses  or  his  fields.  In 
Christian  countries,  a  daughter  is  not  wealth,  though  she  is 
far  better  than  wealth.  The  Proclamation  of  Emancipation, 
in  the  United  States  and  in  Russia,  annihilated  a  vast  mass  of 
wealth  ;  it  created  what  was  better  than  much  wealth — a  body 
of  free  men. 

But  while  strength,  skill  and  intelligence  can  not  be 
detached,  and  transferred,  and  thus  can  not  be  said  to  be 
wealth,  the  present  use  of  them  can  be  assigned  to  another, 
and  hence  may  become  the  subject  of  exchange.  The  rich 
valetudinarian  may  command  the  services  of  the  robust 
laborer,  in  waiting  on  his  person  ;  he  may  hire  the  poor 
scholar  to  be  tutor  to  his  son.  The  usufruct  of  all  such  quali- 
ties and  endowments,  therefore,  properly  constitutes  an  item 
of  wealth,  and,  by  the  force  of  contract,  the  capability  of 
transferring  this  species  of  wealth  may  be  extended  beyond 
the  present  moment  to  considerable  periods  of  time,  as  when  a 
man  is  hired  by  the  month  or  year. 

11.  Relation  of  Wealth  to  Community  of  Goods. — But  it 
may  be  objected  that,  inasmuch  as  exchange  implies  a  present 
individual  possessor,  were  community  of  goods  or  of  labor  to 
be  universally  established,  there  would  no  longer  be  such  a 
thing  as  wealth,  or  such  a  department  of  human  inquiry  as 
Political  Economy. 

To  this  it  is  sufficient  to  reply,  that  community  of  labor  or 
of  enjoyment  is  simply  impossible,  from  the  very  nature  of 
mankind. 

Were  a  hundred  persons  to  unite  in  such  a  society,  each 
would  have  to  work  by  himself :  the  exertion  must  be  his  ; 
the  pain  and  weariness  would  be  all  his.  On  the  other  hand, 
what  he  received  from  the  common  stock,  would  be  his 
own  ;  the  food  would  nourish  him  alone  ;  the  clothing  and  the 


8  POLITICAL  ECONOMY. 

food  would  warm  only  him  ;  none  of  his  fellows  would  share 
in  the  pleasure  or  the  benefit  of  what  he  consumed. 

The  so-called  community  of  labor  and  of  goods,  then, 
amounts  simply  to  a  mode  of  roughly  apportioning  exertion 
and  enjoyment,  on  the  basis  of  an  assumed  equality  of  abilities 
and  of  needs.  Subject  to  all  the  injustice  involved  in  such  an 
assumption,  each  one  of  the  hundred  members  would  still  part 
with  his  services  to  his  fellows,  and  receive  from  them  his 
remuneration,  in  the  form  of  food,  clothing,  fuel  and  shelter. 

12.  Relation  of  Value  to  Gratuity. — It  will  have  been 
gathered  from  what  has  been  said  respecting  value,  that  wealth 
and  well-being  are  not  synonymous.  Much  which  is  essential 
to  the  latter  is  no  element  of  the  former.  Wealth  may  be 
increased  at  the  expense  of  well-being,  as  in  the  case  of  the 
reduction  of  free  laborers  to  the  grade  of  chattel  slavery. 
Wealth  may  be  diminished  temporarily  by  causes  which  min- 
ister to  the  advancement  of  the  community  and.  the  State,  as 
in  the  case  of  inventions  which  throw  out  of  use  large  amounts 
of  material  and  apparatus,  or  of  ameliorating  changes  in 
nature  which  allow  costly  contrivances  to  be  dispensed  with. 

"  If,"  wrote  Prof.  Senior,  "  the  climate  of  England  could 
suddenly  be  changed  to  that  of  .Bogota,  and  the  warmth  which 
we  extract  imperfectly  and  expensively  from  fuel  were  sup- 
plied by  the  sun,  fuel  would  cease  to  be  useful,  except  as  one 
of  the  productive  instruments  employed  by  art  ;  we  should 
want  no  more  grates  or  chimney-pieces  in  our  sitting-rooms  ; 
what  had  previously  been  a  considerable  amount  of  property, 
in  the  fixtures  of  houses,  in  stock  in  trade  and  materials,  would 
become  valueless  ;  coals  would  sink  in  price  ;  the  most  expen- 
sive mines  would  be  abandoned  ;  those  which  were  retained 
would  command  smaller  rents." 

13.  Continuous  Displacement  of  Value  by  Gratuity. — 
We  are  now  called  further  to  notice  that  there  is  a  constant 
tendency  to  this  diminution  of  the  sum  of  Avealth,  and  even  to 
the  annihilation  of  individual  items,  from  age  to  age.  So 
rapid  and  persistent  is  that  tendency  that,  but  for  the  increase 
of  population,  and  the  multiplication  and  diversification  of 
human  desires,  due  to  increasing  civilization  and  refinement, 


DEFINITIONS.  9 

the  subject  matter  with  which  Political  Economy  has  to  deal 
would  be  continually  diminishing. 

How  small  the  sum  of  wealth  which  would  suffice  for  a 
community,  in  our  stage  of  knowledge  and  skill,  which  should 
aspire  to  live  only  as  well  as  a  tribe  of  savages  !  The  boats, 
the  nets,  the  huts,  the  clothing  and  the  domestic  utensils  of  a 
primitive  community  represent  an  incredible  amount  of  exer- 
tion and  sacrifice  ;  possess  a  vast  amount  of  purchasing  power. 
A  like  outfit  would  require  but  an  insignificant  part  of  the 
labor  power  of  a  modern  community,  and  would  have  but 
little  purchasing  power. 

The  tendency  which  has  been  noted  arises  out  of  the  prog- 
ress of  mankind  in  the  chemical  and  mechanic  arts,  by  which 
operations  formerly  difficult  are  made  easy  ;  by  which 
materials  naturally  scarce  are  made  plentiful  ;  by  which 
human  necessities  once  urgently  felt  are  wholly  obviated,  and, 
finally,  by  which  things  once  costing  labor  are  made  to  pro- 
duce themselves  spontaneously. 

14.  Growth  of  Human  Wants.— In    fact,  however,  while, 
in  any  community,  this  displacement  of  value  by  gratuity  is 
continually  in  progress,  the  increase  of  population  and  the 
multiplication  and  diversification  of  human   wants    may   be 
operating  as  steadily  and  strongly  in  the  other  direction.  The 
labor  that  is  made  free  by  discoveries  and  inventions  is  applied 
to  overcome  the  difficulties  which  withstand  the  gratification 
of  newly-felt  desires.     The  hut  is  pulled  down  to  make  room 
for  the  cottage  ;  the  cottage  gives  way  to  the  mansion  ;   the 
mansion  to  the  palace.     The  rude  covering  of  skins  is  replaced 
by  the  comely  garment  of  woven  stuffs  ;  and  these,  in  the 
progress  of  luxury,  by  the  most  splendid  fabrics  of  human 
skill.     In  a  thousand  forms  wealth  is  created  by  the  whole 
energy  of  the  community,  quickened  by  a  zeal  greater  than 
that  which  animated  the  exertions  of  their  rude  forefathers  to 
obtain  a  scanty  and  squalid  subsistence. 

15.  Distinction  between  Wealth  and  Property. — A  fur- 
ther distinction  is  that  between  wealth  and  property.     The 
neglect  of  this  has  caused  great  confusion,  especially  in  dis- 
cussions of  the  principles  and  methods  of  taxation. 


io  POLITICAL  ECONOMY. 

Mr.  J.  S.  Mill  affords  an  example  of  the  confusion  of  these 
terms  when  he  says,  respecting  a  mortgage  on  a  landed  estate, 
"  this  is  wealth  to  the  person  to  whom  it  brings  in  a  revenue, 
and  who  could,  perhaps,  sell  it  in  the  market  for  the  full 
amount  of  the  debt.  But  it  is  not  wealth  to  the  country  ;  if 
the  engagement  were  annulled,  the  country  would  be  neither 
poorer  nor  richer." 

A  more  accurate  statement  of  the  case  would  be  this  :  The 
landed  estate  is  wealth,  that  is,  possesses  value  ;  that  is,  con- 
fers upon  its  possessor  the  power  of  commanding,  in 
exchange  for  itself,  the  labor,  or  the  products  of  the  labor,  of 
others.  The  mortgage  is  property,  or  a  right  to  wealth  ;  in 
this  case,  a  right  to  an  undivided  portion  of  the  landed 
estate.  The  amount  of  the  property  of  the  owner  of  the  estate 
is  the  value  of  the  estate  less  the  mortgage.  There  is  but 
one  body  of  wealth  ;  there  are  two  properties,  that  of  the 
owner,  and  that  of  the  mortgagee.  The  wealth  of  the  commu- 
nity is  no  greater  and  no  less,  whether  the  ownership  of  the 
estate  be  entire,  or  divided  into  two  or  half  a  dozen  properties. 

Indeed,  we  might  say  that  "  property  "  is  not  a  word  with 
.  which  the  political  economist  has  any  thing  to  do.  It  is  legal, 
not  economic,  in  its  significance. 

"  The  wealth,"  says  Prof.  Senior,  "  which  consists  merely 
of  a  right  or  credit,  on  the  part  of  A.,  with  a  corresponding 
duty  or  debt  on  the  part  of  B.,  is  not  considered  by  the  Polit- 
ical Economist.  He  deals  with  the  things  which  are  the  sub- 
jects of  the  right,  or  the  credit,  not  with  the  claims  or  liabili- 
ties which  may  affect  them.  In  fact,  the  credit  amounts  merely 
to  this  :  that  B.  has  in  his  hands  a  part  of  the  property  of  A." 

16.  The  Premises  of  Political  Economy. — What  are  the 
proper  premises  of  Political  Economy  ?  that  is,  what  facts 
and  principles  should  the  economist  take  to  reason  from  ? 
Are  they  many  or  few  ?  Shall  the  economist  take  into 
account  all  the  facts,  mental  or  physical,  which  influence  the 
phenomena  of  wealth  ;  or  shall  he  confine  himself  to  certain 
principal  facts  ? 

Shall  we  take  man,  for  the  purpose  of  economic  reasoning, 
precisely  as  he  is  found  to  be,  with  all  his  appetencies  and 


THE    TWO   SCHOOLS.  II 

Characteristics,  so  far  as  they  affect  the  power  and  the  dispo- 
sition to  labor,  or  so  far  as  they  increase  or  impair  the  ability 
of  individuals  to  secure  their  share  in  the  distribution  of  the 
product  of  industry  ?  or  shall  we  create,  for  the  purposes  of  our 
reasoning,  an  economic  man,  assumed  to  be  impelled  by  certain 
motives  in  respect  to  wealth,  from  whose  actions  men  in  gen- 
eral, knowing  themselves  to  be  more  or  less  fully  controlled 
by  similar  motives,  may  derive  instruction  ? 

Instead  of  seeking  to  extend  our  knowledge  of  the  actual 
conditions  under  which  wealth  is  produced  by  man,  shall  we 
content  ourselves  with  certain  leading  conditions,  such  as  that 
food  is  produced  without  human  labor  only  in  small  quantities 
and  very  precariously  ;  that  the  soils  of  eveiy  country  vary 
widely  in  fertility  ;  and  that  of  no  soil  can  the  produce  be 
increased  indefinitely  without  a  more  than  proportional  expen- 
diture of  labor  and  capital  ? 

Shall  we  take  accoimt  of  the  various  endowments,  in  the 
way  of  soil  and  climate,  mineral  resources  and  water  power,  of 
different  countries?  Shall  we  study  their  institutions  and  the 
predominant  traits  of  character  manifested  by  their  people,  so 
far  as  these  appear  to  influence  their  actions  in  respect  to. 
wealth  ?  Or  shall  we,  on  the  other  hand,  disregard  all  that 
makes  one  nation  to  differ  from  another,  caring  to  learn 
nothing  of  any  which  would  not  hold  good  of  all. 

Upon  the  answer  to  these  questions  depends  the  character 
and  logical  method  of  Political  Economy.  Upon  that  answer 
depends  also  much  of  the  usefulness  of  this  department  of 
inquiry  and  the  interest  it  may  be  expected  to  arouse  in  the 
public  mind. 

17.  Two  Schools  of  Political  Economy. — The  differences 
of  opinion  which  exist  regarding  the  proper  extent  of  the 
premises  of  Political  Economy  have  given  rise  to  two  schools 
which  are  commonly  called  the  English  and  the  German  school. 

The  economists  of  the  former  school  insist  that  the  proper 
premises  of  pure  Political  Economy  consist  of  a  few  certain 
facts  of  human  nature,  of  human  society,  and  of  the  physical 
constitution  of  the  earth.  That  these,  not  more  than  five  or  six 
in  number,  constitute  all  the  premises  proper  to  the  inquiry. 


12  POLITICAL  ECONOMY. 

That  the  scope  of  economic  reasoning  can  not  be  extended 
beyond  these  without  destroying  the  purity  and  simplicity  of 
the  science,  and  introducing  error  and  confusion. 

The  economists  of  the  latter  school  hold  that  it  is  the  prov- 
ince of  Political  Economy  to  explain  the  phenomena  of 
wealth.  That,  in  order  to  do  this,  the  economist  must  inquire 
how  men  do,  in  fact,  behave  in  regard  to  wealth,  constituted 
as  they  are,  and  under  the  conditions  and  circumstances  in 
which  they  are  placed. 

In  this  view,  nothing  that  importantly  influences  the  pro- 
duction and  distribution  of  wealth  can  be  neglected  by  the 
economist.  All  human  history  becomes  his  domain.  The  other 
sciences,  alike  the  physical  and  the  moral,  become  tributary  to 
the  science  he  cultivates. 

With  its  premises  thus  enlarged,  Political  Economy  ceases 
to  be  something  which  one  man  of  superior  intellect  could, 
with  a  definite  exertion  of  his  faculties,  work  completely  out 
at  a  sitting,  as  Beckf  ord  wrote  "  Vathek  "  ;  and  that  too  with- 
out having  visited  any  community  beyond  the  one  in  which  he 
was  born,  or  knowing  a  page  of  history.  Political  Economy, 
as  thus  comprehended,  becomes  a  work  to  which  many  men 
and  successive  ages  must  contribute  ;  the  material  of  which  is 
accumulated  in  human  experience,  and  is  thus  continually  on 
the  increase.  It  becomes  a  work  which  never  is,  but  is  always 
to  be  done,  growing  with  the  growing  knowledge  of  the  race. 

18.  Prof.  Cairnes'  Statement. — It  has  been  said  that  the 
two  schools  of  Political  Economy  are  known  as  the  English 
and  the  German  school.  The  terms  are  not  fortunate,  inasmuch 
as  some  of  the  economists  who  have  labored  most  f  ully  in  the 
spirit  of  the  so-called  German  school,  have  been  natives  of  the 
British  Isles.  The  best  statement  known  to  me  of  the  true 
scope  of  economic  inquiry  is  that  given  by  Prof.  Cairnes,  from 
whose  admirable  lectures*  I  abridge  the  following  paragraphs, 
preserving  the  author's  phraseology  : 

The  desires,  passions  and  propensities  which  influence  man- 

*  "  On  the  Character  and  Logical  Method  of  Political  Economy,"  first 
published  in  1857  ;  reprinted,  revised  and  enlarged  in  1875,  just  before 
the  lamented  author's  death. 


THE    TWO   SCHOOLS.  13 

kind  in  the  pursuit  ot  wealth  are  almost  infinite.  Yet  among 
these  are  some  principles  of  so  marked  and  paramount  a  char- 
acter as  both  to  admit  of  being  ascertained,  and  when  ascer- 
tained, to  afford  the  data  for  determining  the  most  important 
laws  of  the  production  and  distribution  of  wealth.  To  possess 
himself  of  these  is  the  first  business  of  the  political  economist. 
He  has  then  to  take  account  of  some  leading  physiological 
facts  connected  with  human  nature  ;  and,  lastly,  to  ascertain 
the  principal  physical  characteristics  of  those  natural  agents  of 
production  on  which  human  industry  is  exercised. 

But  it  must  not  be  thought  that  when  these  cardinal  facts 
have  been  ascertained,  and  their  consequences  duly  developed, 
the  labors  of  the  political  economist  are  at  an  end.  Many 
subordinate  influences  will  intervene  to  disturb,  and  occasion- 
ally to  reverse,  the  operation  of  the  more  powerful  principles, 
and  thus  to  modify  the  resulting  phenomena. 

19.  Subordinate  Causes  in  Economics. — The  next  step, 
therefore,  in  his  investigations  will  be  to  endeavor  to  ascertain 
the  character  of  those  subordinate  causes,  whether  mental  or 
physical,  political  or  social,  which  influence  human  conduct  in 
the  pursuit  of  wealth.  These,  when  he  has  found  them,  and 
is  enabled  to  appreciate  them  with  sufficient  accuracy,  he  will 
incorporate  among  the  premises  of  the  science. 

Thus,  the  political  and  social  institutions  of  a  country,  in 
particular,  the  laws  affecting  the  tenure  of  land,  will  be 
included  among  such  subordinate  agencies.  It  will  be  for  the 
political  economist  to  show  in  what  way  causes  of  this  kind 
modify  the  operation  of  more  fundamental  principles.  Again, 
any  great  discovery  in  the  arts  of  production,  such,  e.  g.,  as 
the  steam  engine,  will  be  a  new  fact  for  the  consideration  of 
the  political  economist.  It  will  be  like  the  discovery  of  a  new 
planet,  the  attraction  of  which,  operating  on  all  the  heavenly 
bodies  within  the  sphere  of  its  influence,  will  cause  them  more 
or  less  to  deviate  from  the  path  which  had  been  previously 
calculated  for  them. 

In  the  same  way,  also,  those  motives  and  principles  of  action 
which  may  be  developed  in  the  progress  of  society,  so  far  as 
they  may  be  found  to  affect  the  phenomena  of  wealth,  will 


14  POLITICAL  ECONOMY. 

also  be  taken  account  of  by  the  political  economist.  He  will 
consider,  e.  g.,  the  influence  of  custom  in  modifying  human 
conduct  in  the  pursuit  of  wealth.  He  will  consider  how,  as 
civilization  advances,  the  estimation  of  the  future  in  relation 
to  the  present  is  enhanced,  and  the  desire  for  immediate  enjoy- 
ment is  controlled  by  the  increasing  efficacy  of  prudential 
restraint.  He  will  also  observe  how  ideas  of  decency,  comfort 
and  luxury  are  developed  as  society  progresses,  modifying  the 
natural  force  of  the  principle  of  population,  influencing  the 
mode  of  expenditure  of  different  classes,  and  affecting  thereby 
the  distribution  of  industrial  products.  Even  moral  and 
religious  considerations  are  to  be  taken  account  of  by  the 
economist  precisely  in  so  far  as  they  are  found,  in  fact,  to  affect 
the  conduct  of  men  in  the  pursuit  of  wealth. 

20.  Remarks  on  Prof.  Cairnes'  Statement.— Nothing  could 
be  added  to  this  statement  of  the  logical  method  of  Political 
Economy,  as  it  is  pursued  by  those  who  hold  that  it  is  the 
province  of  the  science  to  explain  the  phenomena  of  wealth  ; 
and  that,  to  this  end,  all  causes  which,  whether  primarily,  or 
principally  social,  ethical,  physical  or  physiological,  do,  in  fact, 
enter  to  affect  the  actions  of  men  respecting  wealth,  should  be 
identified  and  determined,  so  far  as  may  be,  both  in  their  direc- 
tion and  in  the  degree  of  their  influence. 

In  this  view  the  economist  who  omits  any  cause,  structural 
or  dynamic,  physical  or  moral,  which  affects  the  production, 
exchange,  distribution  or  consumption  of  wealth,  must  justify 
himself,  not  by  the  plea  that  such  a  cause  has  no  relevancy  to 
his  investigation,  but  by  some  plea  which  would  excuse  an 
admittedly  less  than  complete  treatment  of  the  subject,  e.  g. 
the  lack  of  information,  the  limitations  of  the  human  faculties, 
or  the  need,  for  popular  instruction,  of  very  brief  and  very 
general  statements  of  principle. 

21.  Mr.  Mill  on  the  Economic  Man. — On  the  other  hand, 
perhaps  the  best  statement  of  the  view  taken  by  the  econo- 
mists of  the  so-called  English  school,  as  to  the  proper  premises 
of  Political  Economy,  is  that  given  by  Mr.  J.  S.  Mill,  in  his 
work  published  in  1844. 

"  Political   Economy,"  says   Mr.  Mill,  "  is  concerned  with 


THE    TWO  SCHOOLS.  15 

man  solely  as  a  being  who  desires  to  possess  wealth  and  who 
is  capable  of  judging  of  the  comparative  efficacy  of  means  to 
that  end.  *  *  *  It  makes  entire  abstraction  of  every  other 
human  passion  or  motive,  except  those  which  may  be  regarded 
as  perpetually  antagonizing  principles  to  the  desire  of  wealth, 
namely,  aversion  to  labor  and  desire  of  the  present  enjoyment 
of  costly  indulgences.  These  it  takes,  to  a  certain  extent, 
into  its  calculations,  because  these  do  not  merely,  like  other 
desires,  occasionally  conflict  with  the  pursuit  of  wealth,  but 
accompany  it  always,  as  a  drag  or  impediment,  and  are,  there- 
fore, inseparably  mixed  up  in  the  consideration  of  it.  Politi- 
cal Economy  considers  mankind  as  occupied  solely  in  acquir- 
ing and  consuming  wealth."  * 

We  have  here  all  the  elements  of  the  economic  man.  He  is 
taken  as  a  being  perfectly  capable  of  judging  of  the  compara- 
tive efficacy  of  means  to  the  end  of  wealth.  That  is,  he  will 
never  fail,  whoever  he  may  be,  or  wherever  he  may  live, 
whether  a  capitalist  or  a  laborer,  rich  or  poor,  taught  or 
untaught,  to  know  exactly  what  course  will  secure  his  highest 
economic  interest,  that  is,  bring  him  the  largest  amount  of 
wealth. 

Moreover,  that  end  of  wealth  he  never  fails  to  desire,  with 
a  steady,  uniform,  constant  passion.  Of  every  other  human 
passion  or  motive,  Political  Economy  "  makes  entire  abstrac- 
tion." Love  of  country,  love  of  honor,  love  of  friends,  love  of 
learning,  love  of  art,  pity,  shame,  religion,  charity,  will  never, 
so  far  as  Political  Economy  cares  to  take  account,  withstand 
the  effort  of  the  economic  man  to  amass  wealth. 

There  are,  however,  two  human  passions  and  motives,  of 
which  Political  Economy  takes  account,  as  "  perpetually  antag- 
onizing principles  to  the  desire  of  wealth,"  namely,  "  aversion 
to  labor  and  desire  of  the  present  enjoyment  of  costly  indul- 
gences," that  is,  indolence  and  gluttony. 

As  by  this  view  of  Political  Economy  all  men  are  taken  as 
equally  absorbed  in  the  passion  for  wealth,  so  all  men  are 

*  In  his  great  work,  subsequently  published,  Mr.  Mill  did  not  confine 
himself  to  the  method  here  described  ;  but  professedly  dealt  with  Polit- 
ical Economy  in  many  of  its  "  Applications  to  Social  Philosophy." 


1 6  POLITICAL  ECONOMY. 

taken  as  equally  lazy  and  self-indulgent.  The  South  Sea 
Islander  and  the  large-brained  European  are  equally  averse  to 
exertion ;  equally  subject  to  the  impulses  of  immediate 
appetite. 

22.  Bicardo  the  Master  of  the   English   School. — Such 
are  the  features  of  the  economic  man,  as  delineated  by  Mr. 
Mill.     Not  a  few  treatises  have  been  written  mainly  accord- 
ing to  this  method.     The  ablest  body  of  doctrine  ever  com' 
posed  from  this  point  of  view  is  that  of  David  Ricardo.  Hence 
this  school  of  Political  Economy  may  not  inaptly  be  called 
the  Ricardian.     Mr.  Ricardo,  indeed,  modified  those  assump- 
tions so  far  as  to  recognize  the  difference  in  economic  quality 
existing  between  men  of  different  countries,  not  only  between 
the  East  Indian  and  the  Englishman,  but  also  between  the 
Englishman  and  the  Portuguese.     Within  the  same  country, 
however,  he  recognized  no  such  differences  ;    but  held  rigor- 
ously  to   the   few  and   simple   postulates   which  have  been 
stated.     The  acuteness   of  his  intellect,  the   tenacity  of  his 
logical  grasp,  make  him  easily  the  master  of  all  the  econo- 
mists of  this  school. 

23.  Relations  of  the  Two   Schools.— It   need   not    be  a 
matter  of  surprise  that  so  wide  a  difference  of   opinion  as  to 
the    proper   scope   of  economic   inquiry  should  have  led  to 
much  passionate  controversy.     The  economists  of  the  so-called 
German  school  have  been  disposed  to  deny,  not  only  the  uni- 
versality of  principles  deduced  from  assumptions  so  arbitrary 
and  falling  so  far  short  of  the  real  facts  of  life  and  society, 
but  also  the  significance,  for  any  purpose  whatever,  of  conclu- 
sions thus  obtained.     The  economists  of  the  so-called  English, 
or  Ricardian  school,  have  treated  the  method  of  their  oppo- 
nents as  unscientific,  giving  scope  to  charlatanry,  and  at  the 
best  tending  to  mere  sentimentality. 

The  mutual  contempt  entertained  by  the  two  schools  is  not 
justified  by  a  large  view  of  the  progress  of  economics  in  the 
past,  or  by  a  consideration  of  the  history  of  other  social  sci- 
ences. Political  Economy  should  begin  with  the  Ricardian 
method.  A  few  simple  assumptions  being  made,  the  pro- 
cesses of  the  production,  exchange  and  distribution  of  wealth 


IS  IT  A    SCIENCE?  17 

should  be  traced  out  and  be  brought  together  into  a  complete 
system,  which  may  be  called  pure  Political  Economy,  or  arbi- 
trary Political  Economy,  or,  a  priori  Political  Economy,  or 
by  the  name  of  its  greatest  teacher,  Ricardian  Political 
Economy.  Such  a  scheme  should  constitute  the  skeleton  of 
all  economic  reasoning  ;  but  upon  this  ghastly  frame-work 
should  be  imposed  the  flesh  and  blood  of  an  actual,  vital 
Political  Economy,  which  takes  account  of  men  and  societies 
as  they  are,  with  all  their  sympathies,  apathies,  and  antipa- 
thies ;  with  every  organ  developed,  as  in  life  ;  every  nerve  of 
motion  or  of  sensibility  in  full  play. 

24.  The   True  Labor   of  Philosophy. — On    this     subject 
what  could  be  more  pregnant  with  meaning  than  the  aphorism 
of  Bacon,  "  Those  who  have  treated  of  the  sciences  have  been 
either  empirics  or  dogmatical. 

"  The  former,  like  ants,  only  heap  up  and  use  their  store  ; 
the  latter,  like  spiders,  spin  out  their  own  web. 

"  The  bee,  as  a  mean  between  both,  extracts  matter  from 
the  flowers  of  the  garden  and  the  field  ;  but  works  and  fash- 
ions it  by  its  own  efforts. 

"  The  true  labor  of  philosophy  resembles  hers  ;  for  it  neither 
relies  entirely  or  principally  on  the  powers  of  the  mind,  nor 
yet  lays  up  in  the  memory  the  matter  afforded  by  the  experi- 
ments of  natural  history  and  mechanics,  in  its  raw  state,  but 
changes  and  works  it  in  the  understanding." 

25.  Is  Political  Economy  indeed  a  Science  ? — The  answer 
to  this  question  depends  rather  upon  the  definition  imposed 
on  the  word  science,  than  upon  the  view  we  take  of  Political 
Economy  itself.     If  we  give  the  word  no  wider  extension  than 
Dr.  Whewell   gave  it,  when  he  spoke  of   "  those  bodies  of 
knowledge  which  we  call  sciences,"  Political  Economy  indu- 
bitably ranks  as  a  science.    It  forms  a  body  of  knowledge,  con- 
stantly growing,  it  is  true,  from  the  outside,  and  undergoing 
not  a  little  change  from  time  to  time  within,  yet  still  embrac- 
ing, in  the  present,  a  vast  collection  of  related  facts,  with  the 
reason  of  their  succession,  one  to  another,  more  or  less  clearly 
seen,  and  allowing  many  practical  rules  and  precepts  of  great 
importance  in  determining  human  conduct  to  be  deduced  with 


1 8  POLITICAL  ECONOMY. 

all  needed  assurance.  In  this  sense,  then,  Political  Economy 
is  a  science. 

Whether  it  be  a  science  in  the  highest  sense  given  that  word, 
may  be  disputed.  M.  Comte,  the  great  positivist  philoso- 
pher, denied  the  claim  of  Political  Economy  to  this  title.  In 
his  view,  it  is  an  attribute  of  a  true  social  science  that  it 
results  in  establishing  a  rational  filiation  between  events,  so  as 
to  allow  of  systematic  prevision  respecting  their  occurrence 
in  a  certain  succession.  Prediction — forecast  of  the  future 
— is,  according  to  M.  Comte,  the  fruit  of  all  true  science. 
Of  this,  he  asserts,  political  economy  has  not  shown  itself 
capable. 

Prof.  Cairnes  rejoins  that  the  economic  prevision  is  a  pre-' 
vision  not  of  events,  but  of  tendencies.  Admitting  the  inca- 
pacity of  forecasting  events,  Prof.  Cairnes  urges  that  "  it 
argues  no  imperfection  in  economic  science.  The  imperfection 
is  not  here,  but  in  those  other  cognate  sciences,  to  which 
belongs  the  determination  of  the  non-economic  quantities  in 
the  problem,  etc.  *  *  Meanwhile  it  is  no  slight  gain,  in 
speculating  on  the  future  of  society,  to  have  it  in  our  power 
to  determine  the  direction  of  an  order  of  tendencies  exercising 
so  wide,  constant  and  potent  an  influence  on  the  course  of 
human  development,  as  the  conditions  of  wealth.  *  *  * 
So  much  for  the  highest  form  of  scientific  fruit,  '  forecast  of 
the  future.'  The  principle,  however,  of  establishing  a  filiation 
in  events  may  take  the  more  modest  form  of  explaining  the 
past.  *  *  That  political  economy,  assuming  that  it  fulfills 
its  limited  purpose  of  unfolding  the  natural  laws  of  wealth,  is 
capable  of  throwing  light  on  the  evolutions  of  history,  will 
scarcely  be  denied." 

26.  The  Practical  Importance  of  Political  Economy. — 
We  can  not  stay  to  discuss  the  question.  Whether  Political 
Economy  be  or  be  not  a  science  in  the  high  sense  attributed  to 
that  word  by  M.  Comte,  it  assuredly  is,  as  a  branch  of  social 
inquiry,  worthy  the  earnest  attention  of  every  publicist  and 
every  citizen.  It  deals  with  some  of  the  most  important  sub- 
jects which  concern  society.  Whether  the  'degree  of  assur- 
ance that  may  be  attained  in  the  study  of  these  questions  be 


A    SCIENCE    OR  AN  ART.  19 

higher  or  be  lower,  the  questions  can  not  but  be  more  justly 
decided  by  reason  of  such  study. 

If  Political  Economy  have  not  yet  reached  the  standing  of 
a  true  science,  in  the  high  sense  in  which  that  word  is  used  by 
M.  Comte  ;  if  political  economists  are  still  at  disagreement 
on  many  points  of  theoretical  or  practical  importance,  it  can 
not  be  denied  that  the  investigation  of  the  conditions  of  wealth 
by  Adam  Smith  and  his  successors  has  already  resulted  in  the 
removal  of  monstrous  delusions  which  a  century  ago  pro- 
foundly affected  the  legislation  of  every  civilized  country,  to 
the  inexpressible  injury  of  the  commonwealth  of  nations.  The 
first  fruits  of  Political  Economy  have  been  worth  a  million 
times  the  intellectual  effort  that  has  been  bestowed  upon  the 
siibject. 

27.  Distinction  between  a  Science  and  an  Art. — Before 
proceeding  to  inquire  whether  Political  Economy  should  be 
dealt  with  as  a  science  or  as  an  art,  it  seems  desirable  strongly 
to  emphasize  the  distinction  between  a  science  and  an  art. 
This  is  the  more  needed  because  of  the  strangely  persistent 
habit  of  economic  writers  in  confusing  these  two  things,  which 
should  be  kept  clearly  distinct. 

A  science,  whether  the  science  of  mathematics,  or  physics, 
or  mechanics,  or  chemistry,  or  geology,  or  physiology,  or 
economics,  deals  only  with  the  relations  of  cause  and  effect 
within  its  own  field.  It  assumes  nothing  to  be  a  good  and  noth- 
ing to  be  an  evil.  It  does  not  start  with  the  notion  that  some- 
thing is  desirable  or  undesirable  ;  nor  does  it  arrive  at  any 
such  conclusion  as  its  result.  It  has  no  business  to  offer  pre- 
cepts or  prescriptions.  Its  sole  single  concern  is  to  trace 
effects  back  to  their  causes  ;  to  project  causes  forward  to  their 
effects. 

An  art,  on  the  other  hand,  starts  with  the  assumption  that  a 
certain  thing  is  desirable  or  that  a  certain  other  thing  is  unde- 
sirable ;  that  something  is  a  good  or  that  something  is  an  evil. 
The  object  it  seeks  is  to  ascertain  how  the  good  may  be 
attained,  or  the  evil  avoided.  In  pursuing  this  inquiry,  it 
makes  use  of  the  principles,  or  laws,  governing  the  relations 
of  cause  and  effect,  which  have  been  ascertained  in  the  cultiva- 


20  POLITICAL  ECONOMY. 

tion  of  any  and  all  sciences  that  have  in  any  way  to  do  with  its 
own  subject  matter.  As  a  result,  it  issues  with  certain  precepts 
and  prescriptions  for  the  guidance  and  assistance  of  those  who 
would  gain  the  good  or  avoid  the  evil  which  that  particular 
art  has  in  contemplation,  whether  it  be  the  art  of  navigation, 
or  of  cookery,  of  painting,  of  gunnery,  of  architecture,  of  min- 
ing, or  of  weaving. 

28.  The  Distinction  Illustrated. — This  distinction  between 
a  science  and  an  art  ought  to  be  sufficiently  clear  ;  but  the 
inveterate  disposition  of  economic  writers,  which  has  been 
referred  to,  will  perhaps  justify  an  illustration  which  I  shall 
make  familiar,  even  at  the  risk  of  appearing  coarse. 

Suppose  I  am  in  my  laboratory  and  a  man  enters  wrho 
says  that  he  desires  to  consult  me,  as  a  professor  of  chemistry, 
as  to  whether  he  had  better  swallow  the  contents  of  a  vial  which 
he  holds  in  his  hand.  I  reply  to  him  :  "Sir,  I  have  no  advice, 
as  a  professor  of  chemistry,  to  offer  you  as  to  what  you  shall 
swallow  or  refrain  from  swallowing.  I  perceive  that  the 
liquid  contained  in  your  vial  is  prussic  acid.  I  will  cheerfully 
state  to  you  the  action  of  prussic  acid  on  any  substance  about 
which  you  may  choose  to  inquire  ;  but  probably  you  had  bet- 
ter, for  your  apparent  purpose,  go  to  Prof.  S.,  the  physiolo- 
gist, who  can  more  fully  and  readily  than  myself  explain  the 
precise  action  of  prussic  acid  when  taken  into  the  stomach  of 
a  living  being." 

The  inquirer  now  goes  to  Prof.  S.,  and  says  that  he  desires 
to  consult  him,  as  a  professor  of  physiology,  as  to  whether  he 
had  better  swallow  the  liquid  which  the  chemist  has  told  him 
is  undilute  prussic  acid.  Prof.  S.  replies  :  "  Sir,  should  you 
consult  me  as  a  fellow  being,  I  would  not  stand  on  ceremony, 
but  frankly  advise  you  to  empty  the  contents  of  your  vial 
into  the  sink.  But  if  you  insist  on  consulting  me  as  a  pro- 
fessor of  physiology,  I  must  reply  that  I  have  no  advice  to 
give.  Physiology,  sir,  is  a  science  ;  as  such,  it  has  nothing  to 
do  with  precepts  or  prescriptions,  but  only  with  the  relations  of 
cause  and  effect  within  the  field  of  animal  life.  As  a  student 
of  that  science,  I  inform  you  that,  if  you  swallow  the  liquid, 
you  will  experience  such  and  such  sensations,  and,  at  about 


SCIENCE  OR  ART.  21 

such  a  time,  you  will  be  dead.  Since  you  still  insist  upon  hav- 
ing advice  as  to  whether  you  had  better  do  this  or  not,  I  refer 
you  to  my  neighbor,  Dr.  G.,  who  is  the  professor,  not  of  a 
science,  but  of  an  art.  As  such,  it  is  his  business  to  give 
advice  regarding  conduct.  As  such,  he  has  a  right  to  enter- 
tain the  notion  that  certain  things  are  good,  and  certain  things 
evil  ;  that  the  means  calculated  (as  shown  by  the  appropriate 
science  or  sciences)  to  bring  about  the  good,  are  desirable  ; 
that  the  courses  which  (as  shown  by  the  appropriate  science 
or  sciences)  lead  to  the  evil,  are  undesirable.  He  would  not 
be  a  physician  unless  he  held  that  pain  and  death  were  evil ; 
life  and  the  absence  of  pain,  good.  What  he  is  a  physician 
for  is  to  help  his  patients  to  avoid  the  evil  and  obtain  the  good. 
In  doing  this  he  will  naturally  seek  to  apply  the  largest  and 
latest  results  of  the  science  of  physiology  to  the  art  of  healing."' 

29.  Distinction  between  Political  Economy  as  a  Science 
and  as  an  Art. — "  If,"  says  Prof.  Senior,  "Political  Economy 
is  to  be  treated  as  a  science,  it  may  be  denned  as  the  science 
which  states  the  laws  regulating  the  production  and  distri- 
bution of  wealth,  so  far  as  they  depend  on  the  action  of  the 
human  mind.     If  it  be  treated  as  an  art,  it  may  be  defined  as 
the  art  which  points  out  the  institutions  and  habits  most  con- 
ducive to  the  production  and  accumulation  of  wealth  ;  or,  if 
the  teacher  ventures  to  take  a  wider  view,  as  the  art  which 
points  out  the  institutions  and  habits  most  conducive  to  that 
production,  accumulation  and  distribution  of  wealth  which  is 
most  favorable  to  the  happiness  of  mankind." 

30.  Prof.  Senior  goes  on  to  remark  that,  in  the  eighteenth 
century,  political  economy  was  treated  as  an  art,    a  branch 
of   statesmanship.     Sir   James   Steuart    so   treated   it.      The 
French  Physiocrats  so  regarded  it.     Even  with  Adam  Smith, 
"  the  scientific  portion  of  his  work  is  merely  an  introduction 
to  that  which  is  practical." 

Oddly   enough,  the  statesman   Turgot  must  be  made  an 

exception  to  the  remark  respecting  the  French  Physiocrats. 

"  It  is  remarkable,"  says  Prof.   Senior,  "  that  the  only  man 

among  the  disciples  of  Quesnay*  who  was  actually  practicing 

*See  paragraph  48. 


-*2  POLITICAL  ECONOMY. 

Apolitical  economy  as  an  art,  is  the  only  one  who  treated  its 
principles  as  a  science.  His  '  Reflexions  sur  la  formation  et 
la  distribution  des  richesses,'  published  in  1774,  is  a  purely 
scientific  treatise.  It  contains  not  a  word  of  precept,  and 
might  have  been  written  by  an  ascetic,  who  believed  wealth 
to  be  an  evil." 

Prof.  Senior  continues  :  "  The  English  writers  who  have 
succeeded  Adam  Smith  have  generally  set  out  by  defining 
political  economy  as  a  science,  and  proceeded  to  treat  it  as 

.an  art.  Mr.  Ricardo  is,  however,  an  exception.  His  great 
work  is  little  less  scientific  than  that  of  Turgot.  His  absti- 
nence from  precept,  and  even  from  illustrations  drawn  from 
real  life,  is  the  more  remarkable,  as  the  subject  of  his  treatise- 
is  '  Distribution,'  the  most  practical  branch  of  political  econ- 

•omy,  and  'Taxation,'  the  most  practical  branch  of  Distribu- 
tion. The  modern  economists  of  France,  Germany,  Spain, 
Italy  and  America,  so  far  as  I  am  acquainted  with  their  works, 

:all  treat  political  economy  as  an  art." 

31.  "We  shall  deal  with  Political  Economy  as  a  Science. 
— The  inveterate  disposition,  wiiich  Prof.  Senior  thus  notes, 
to  abandon  the  investigation  of  principles  for  the  formulation 
of  precepts,  has  doubtless  retarded  greatly  the  progress  of 
political  economy.  It  can  not  be  too  strongly  insisted  on, 
that  the  economist,  as  such,  has  nothing  to  do  with  the 
questions,  what  men  had  better  do  ;  how  nations  should  be 
governed  ;  or  what  regulations  should  be  made  for  their 
mutual  intercourse.  His  business  simply  is  to  trace  economic 
effects  to  their  causes,  leaving  it  to  the  philosopher  of  every- 
day life,  to  the  moralist  or  the  statesman,  to  teach  how  men 
and  nations  should  act  in  view  of  the  principles  so  estab- 
lished. The  political  economist,*  for  example,  has  no  more 

*  A  distinguished  English  Economist,  quoting  this  remark,  in  the 
Contemporary  Review,  asks  with  some  asperity,  "  What,  then,  should  the 
political  economist  preach  ?"  I  answer,  nothing.  His  business  is  to 
teach  and  not  to  preach.  He  acquits  himself  of  his  duty  whfi  Ire  shows 
the  relations  of  cause  and  effect  within  the  field  of  industry,  leaving  it  to 
•  statesmen,  moralists  and  men  of  affairs  to  act  for  themselves,  or  to  preach 
to  others,  with  reference  to  what  the  political  economist  teaches. 


75  POLITICAL  ECONOMY  NATIONAL?  23. 

call  to  preach  free  trade,  as  the  policy  of  nations,  than  the 
physiologist  to  advocate  monogamy  as  a  legal  institution. 

Throughout  this  work  until  we  reach  Part  VI,  which  will 
be  in  terms  devoted  to  Some  Applications  of  Economic  Prin- 
ciples, the  effort  will  be  made  to  treat  political  economy 
strictly  as  a  science.  If  at  any  point  the  writer  lapses  into 
expressions  only  suitable  to  the  teacher  of  an  art,  it  will  be 
partly  because  of  that  strong  predisposition  which  has  been 
noted  in  almost  all  writers  on  this  subject,  and  partly  to  the 
influence  of  example. 

32.  Is  There  a  National  Political  Economy  P — This  is  a. 
question  which  has  been  much  debated.     The  so-called  pro- 
tectionists have  favored  the  view  that  each  country  has  a 
political  economy  of  its  own.     One  writer  of  our  own  country 
has  entitled  his  work  "  American  Political  Economy." 

The  controversy  over  this  question  arises  out  of  the  confu- 
sion produced,  first,  by  the  failure  to  distinguish  between  the 
science  of  political  economy  and  the  use  of  political  economy 
in  the  art  of  statesmanship  ;  secondly,  by  the  different  views, 
taken  of  the  proper  premises  of  the  science  of  political 
economy  by  the  two  schools  (Par.  17)  before  referred  to. 

Those  who  say  that  there  is  an  American  Political  Econo- 
my, for  example,  mean  that  the  precepts  derived  from  politi- 
cal economy,  whether  addressed  to  the  legislator,  or  to  the 
body  of  the  people,  should  not  be  applied  to  America  without 
reference  to  the  peculiar  constitution,  conditions  and  needs 
of  America.  But  a  science  has  nothing  to  do  with  precepts 
or  prescriptions.  Rules  of  conduct  belong  to  an  art. 

33.  National  and  Race  Characteristics. — Moreover,  the- 
notion  that  there  is  a  political  economy  for  each  race  of  men, 
and  even  for  each  nation,  has  been  fostered  by  the  arbitrary 
character   of   the  assumptions  of  what  we  have  called  the 
Ricardian   school,   and   by   the    refusal  to  pay  a  reasonable 
regard  to  some  of  the  most  characteristic  features  of  human 
nature  and  some  of  the  most  prominent  facts  of  industrial 
society,  Embracing  institutions  and  laws  which  vitally  affect 
the  production  and  distribiition  of  wealth. 

Thus,  the    d  priori   economist,  in   discussing  the  question 


24  POLITICAL  ECONOMY. 

of  wages,  assumes,  for  the  purposes  of  his  reasoning,  a  body 
of  laborers  who  are  wholly  intent  on  getting  the  largest 
remuneration  ;  who  will,  for  any  advantage,  however  slight, 
change  their  occupation,  and  with  equal  readiness  their  place 
of  abode,  at  least  within  their  own  country  ;  who,  moreover, 
are  so  intelligent  and  well-informed  that  no  preference, 
economically,  can  exist  on  behalf  of  any  other  occupation  or 
place  of  abode,  without  their  knowing  it,  and,  of  course, 
acting  at  once  upon  it.  The  economist  having  created  such 
a  race  of  beings,  whose  likeness  is  found  nowhere  upon  earth, 
proceeds  to  point  out,1  it  may  be  with  great  acuteness  and 
accuracy,  what  the  individual  members  thereof  would  do  in 
various  supposed  cases,  under  the  impulse  of  this  or  that 
economic  force.  His  conclusions  are  put  forth  as  "  laws  "  of 
political  economy. 

Is  it  strange  that  an  intelligent  East  Indian,  reading  these 
conclusions,  should  say,  if  this  is  political  economy,  it  must  be 
European  political  economy,  and  there  should  be  a  separate 
political  economy  for  the  East,  since  here,  over  vast  regions, 
social  and  religious  feelings  absolutely  prohibit  multitudes  of 
workmen  from  changing  their  occupation,  for  any  reason  ; 
while  the  almost  uniform  penury  of  the  laboring  class,  their 
ignorance,  superstition,  and  fear  of  change,  combine  to  render 
movement  from  place  to  place  tardy  and  difficult,  if  riot,  as  in 
most  cases,  practically  impossible  ? 

34.  Relation  of  Political  Economy  to  other  Sciences. — 
Political  Economy  does  not  ascertain  for  itself  a  single  one  of 
the  facts  which  form  the  premises  of  the  economist.  These 
are  all  derived  from  other  sciences  as  data,  i.  e.,  things  given. 
From  the  physiologist,  for  instance,  is  obtained  the  fact  of 
man's  need  of  food  to  sustain  life,  from  which  is  deduced  the 
economic  doctrine  of  minimum  wages.  From  the  physiologist, 
again,  is  obtained  the  fact  of  a  strong  disposition,  arising  from 
the  sexual  passion,  to  carry  population  beyond  the  limits  of 
decent  or  comfortable  subsistence,  from  which  is  deduced  the 
much-abused  doctrine  known  as  Malthusianism.  From  the 
agricultural  chemist  is  obtained  the  fact  that,  beyond  a  certain 
point,  the  application  of  capital  and  labor  to  land  yields  a 


RELATIONS  TO  OTHER  SCIENCES.  25 

continually  diminishing  return,  from  which  is  deduced  the 
doctrine  of  Rent.  None  of  these  facts  does  the  economist 
ascertain  for  himself.  He  takes  them,  as  the  realized  results 
of  other  sciences,  and  makes  them  the  premises,  the  starting 
point,  of  his  own. 

Even- the  fact  of  the  indisposition  of  men  to  strenuous  exer- 
tion, from  which  is  deduced  the  principle  that  they  will,  so 
far  as  they  are  intelligent  and  are  left  free  to  act,  always 
buy  in  the  cheapest  market,  is  not  found  by  the  economist.  It 
is  furnished,  ready  to  his  hand,  by  the  moral  philosopher. 
The  economist  takes  from  all  sciences,  by  turns,  all  facts  which 
bear  upon  the  one  subject,  wealth ;  considers  them  only  so  far 
as  they  bear  thereon  ;  and  puts  them  together  and  builds  them 
up  into  a  "  body  of  knowledge  "  which  he  calls  the  Science  of 
Wealth,  or  Political  Economy.  Even  in  the  field  of  prices  and 
wages,  the  distinction  should  always  be  observed  between  the 
economic  statistician,  who  finds  the  facts,  and  the  economist, 
who  puts  the  facts  into  their  place  in  the  industrial  system. 

35.  Political  Economy  and  Natural  Theology.— Prof. 
Cliffe  Leslie  has  shown  the  powerful  influence  exerted  upon 
the  economic  views  of  Adam  Smith,  who,  as  Professor  of  Moral 
Philosophy  in  the  University  of  Glasgow,  had  occasion  to 
teach  both  Political  Economy  and  Natural  Theology,  by  the 
assumption  of  a  beneficent  natural  order  of  society,  to  the 
disturbance  of  which  by  human  institutions  are  due  all  the 
economic  evils  that  afflict  mankind.  To  this  order-of -nature 
it  should,  according  to  Dr.  Smith,  be  the  unceasing  effort  of 
mankind  to  return  ;  and  the  political  economist  will  fully  dis- 
charge himself  of  his  mission  as  an  investigator  and  teacher 
when  he  points  out  the  path  by  which  mankind  may  make 
their  way  back  to  that  state  in  which  all  things  economic  will 
work  together  for  the  good  of  the  race. 

Now,  this  subjection  of  political  economy  to  the  interests  of 
natural  theology  is  wrong.  I  do  not  say  that  good  natural 
theology  will  make  bad  political  economy.  I  content  myself 
with  asserting  that  political  economy  has  just  as  much  right 
to  be  independent  of  natural  theology,  as  have  astronomy  and 
geology.  There  was  a  time  when  the  students  of  those 


26  POLITICAL  ECONOMY. 

sciences  were  deemed  to  be  bound  to  restrain  themselves  within 
the  supposed  requirements  not  only  of  natural  theology,  but 
also  of  revealed  religion.  We  know  how  mischievous  were 
the  consequences  of  that  subjection. 

Political  economy  owes  nothing  to  natural  theology.  The 
economist  is  under  no  obligation  to  any  assumptions  derived 
from  that  source.  He  has  no  more  right  to  start  with  the 
theory  of  an  order  of  nature  which  is  purely  beneficent,  than 
he  would  have  to  start  with  the  opposite  theory  of  an  order 
of  nature  wholly  maleficent.  As  economist,  he  has  no  mission 
to  "  vindicate  the  ways  of  God  to  man."  He  is  to  investigate 
the  laws  of  wealth.  That  duty  he  will  best  discharge  by 
reasoning  as  justly  as  his  mental  powers  enable  him  to  do, 
from  economic  premises  which  have  been  established  by  ade- 
quate induction,  and  from  such  only. 

36.  Political  Economy  and  Political  Equity.— The  boun- 
dary line  between  ethical  and  economic  inquiry  is  perfectly  clear, 
if  one  will  but  regard  it.  Great  confusion  has  been  engen- 
dered by  writers  in  economics  wandering  off  into  discussions  of 
political  equity.  The  economist,  as  such,  has  nothing  to  do 
with  the  question  whether  existing  institutions,  or  laws,  or 
customs,  are  right  or  wrong  :  why  right,  or  how  far  right : 
why  wrong,  or  how  far  wrong.  His  only  concern  with  them 
is  to  ascertain  how  they  do,  in  fact,  affect  the  production  and 
distribution  of  wealth. 

It  is  true  that  if  the  sense  of  injustice  be  awakened  in  the 
mass  of  the  people,  or  in  any  considerable  class  in  the  com- 
munity, industry,  frugality,  and  sobriety  are  likely  to  be  in  a 
greater  or  less  degree  impaired,  and  thus  the  production  and 
distribution  of  wealth  will  be  affected.  But  it  is  wholly  because 
of  the  effect  last  indicated,  and  not  at  all  because  of  its  ethical 
character,  that  any  social  arrangement  or  political  institution 
comes  within  the  consideration  of  the  economist. 

Indeed  there  is  reason  to  believe  that  such  arrangements 
and  institutions  do  not  necessarily  produce  economic  evils  in 
proportion  to  the  degree  in  which  they  violate  political  equity. 
A  custom  or  law  might  conceivably  be  inequitable  in  the 
degree  to  be  flagrantly  iniquitous,  yet  exert  only  a  slight 


RELATIONS  TO  OTHER  SCIENCES.  27 

influence  npon  the  production  or  distribution  of  wealth. 
Another,  presenting  so  great  an  array  of  reasons  in  its  favor 
that  many  ethical  writers  would  strongly  approve  it,  might, 
by  crossing  popular  prejudices,  or  through  some  wholly  adven- 
titious feature  of  its  own,  become  a  mighty  economic  force 
for  mischief.  Indeed,  it  is  not  at  all  because  a  social  arrange- 
ment or  political  institution  is  wrong,  but  because  people  think 
it  wrong,  that  it  does  harm  in  the  domain  of  wealth.  The 
system  of  land  tenure  against  which  the  peasantry  of  Ireland 
are  so  largely  in  revolt  does  an  amount  of  mischief  which  is 
wholly  independent  of  the  consideration  whether  the  Irish 
people  or  the  English  Parliament  be  at  fault  in  the  matter. 

37.  Respect  the  Limits  of  Economic  Inquiry. — Hence  we 
say  that  the  limits  of  strictly  economic   inquiry  should  be 
scrupulously  respected.     The  writer  on  ethics  who  deems  the 
greatest  good  of  the  greatest  number  the  ultimate  rule  of 
right,  may  make  excursions  into  economics,  in  order  to  judge 
of  the  moral  quality  of  an  act,  or  a  system,  by  its  effects  on 
the  production  and  distribution  of  wealth  ;  but  the  economist, 
on  his  part,  has  no  occasion  to  cross  the  boundary  line.     The 
French  writers,  who  have,  in  general,  been  singularly  just  in 
their   apprehension   of   the  character  and  logical  method  of 
political  economy,  have,  more  than  all  others,  erred  on  this 
side.     Many  of  them  write  throughout  with  a  side  glance  at 
the  existing  social  system.      They  profess  to  be  intent  on  the 
solution  of  economic  problems,  while  directing  their  efforts 
toward  the  vindication  of  political  arrangements.     The  writ- 
ings of   the  admirable  Frederic  Bastiat  are  deeply  infected 
with  this  error.     He  strives  incessantly  to  prove  that  the  insti- 
tution of  property  is  just ;  whereas  the  only  concern  which, 
as  an  economist,  he  has  with  that  institution,  is  to  inquire  how 
it  influences  the  action  of  mankind  in  respect  to  wealth. 

38.  Sentiment  and  Political  Economy. — Holding    rigidly 
to  the  same  view  of  the  nature  and  scope  of  economic  inquiry, 
we  see  that  those  who  allow  their  opinions  to  be  in  any  degree 
shaped  by  what  is  called  sentiment,  are  equally  wrong  with 
those  who  sneer  at  any  recognition  of  sentiment  by  the  econ- 
omist.     The  economist's  own  sentiments  should  be  put  com- 


28  POLITICAL    ECONOMY. 

pletely  out  of  sight ;  he  has  only  to  do  with  the  sentiments 
of  others,  and  with  these  only  so  far  as  they  affect  the  actions 
of  men  in  respect  to  wealth. 

We  shall  have  occasion  to  observe  that  feelings  of  justice, 
of  compassion,  of  respect,  of  kindly  regard,  may  greatly  influ- 
ence the  rents  paid  in  any  country,  by  tenants  to  landlords,  or 
the  wages  paid  by  employers  to  workingmen  or  working- 
women.  So  far  as  such  sentiments  produce  these  effects,  they 
require  to  be  recognized  as  economic  forces. 

39.  Relation  of  Political  Economy  to  Sociology. — M. 
Comte,  whom  we  have  already  quoted,  as  denying  to  political 
economy  the  character  of  a  true  science,  because  its  history 
did  not,  as  he  esteemed  it,  bear  the  tests  of  continuity  and 
fecundity,  also  held  that  the  phenomena  of  wealth  should  not, 
and  could  not  advantageously,  be  considered  apart  from  the 
facts  of  the  intellectual,  moral  and  political  order  with  which 
they  are  closely  interwoven.  Society,  he  held,  must  be  con- 
sidered in  the  totality  of  its  elements.  All  isolated  theory  of 
a  particular  aspect  of  social  life,  such  as  wealth,  or  of  a  single 
order  of  relations,  e.  </.,  the  economic,  he  regarded  as  essen- 
tially vicious.  The  laws  and  conditions  of  wealth,  in  the  view 
of  this  writer,  are  a  single  thread  in  a  closely  knit  web  of 
social  interests  and  concerns,  from  which  no  one  can  be  dis- 
connected, to  be  contemplated  by  itself  alone. 

To  this  opinion,  Mr.  J.  S.  Mill  has  made  what  seems  to  be 
a  conclusive  reply  : 

"  Notwithstanding,"  he  says,  "  the  universal  consensus  of  the 
social  phenomena,  whereby  nothing  which  takes  place  in  any 
part  of  the  operations  of  society,  is  without  its  share  of  influ- 
ence on  every  other  part,  and  notwithstanding  the  paramount 
ascendency  which  the  general  state  of  civilization  and  social 
progress  in  any  given  society  must  hence  exei'cise  over  all  the 
partial  and  subordinate  phenomena,  it  is  not  the  less  true  that 
different  species  of  social  facts  are,  in  the  main,  dependent, 
immediately,  and  in  the  first  resort,  on  different  kinds  of 
causes,  and,  therefore,  not  only  may  with  advantage,  but  must 
be  studied  apart,  just  as,  in  the  natural  body,  we  study  separ- 
ately the  physiology  and  pathology  of  each  of  the  principal 


SPECIAL    OBSTACLES.  29 

organs  and  tissues,  though  every  one  is  acted  on  by  the  state 
of  all  the  others,  and  though  the  peculiar  conditions  and  gen- 
eral health  of  the  organism  co-operate  with  and  often  predom- 
inate over,  the  local  cause*,  in  determining  the  state  of  any 
particular  organ." 

40.  Obstacles  which  Political  Economy  Encounters.— 
It  is  worth  while  to  note  certain  obstacles  which  the  econo- 
mist encounters  in  his  efforts  to  secure  the  popular  recognition 
and  acceptance  of  the  laws  of  wealth,  as  he  discerns  them  in 
his  study  of  man  and  society.     Two  of  these  may  be  regarded 
as  wholly  peculiar  in  kind,  or  highly  peculiar  in  the  degree  in 
which  political  economy  encounters  them. 

The  first  is  well  expressed  by  Prof.  Cairnes  :  "  Its  close 
affinity  to  the  moral  sciences  brings  it  constantly  into  collision 
with  moral  feelings  and  prepossessions,  which  can  not  fail  to 
make  themselves  felt  in  the  discussion  of  its  principles  ;  while 
its  conclusions,  intimately  connected  as  they  are  with  the  art 
of  government,  have  a  direct  and  visible  bearing  upon  human 
conduct,  in  some  of  the  most  exciting  pursuits  of  life."  Arch- 
bishop Whately  had  the  same  in  view  when  he  remarked  that 
the  demonstrations  of  Euclid  would  not  have  commanded  uni- 
versal assent  had  they  been  applicable  to  the  pursuits  and 
fortunes  of  individuals. 

41 .  Another  of  the  obstacles  referred  to  is  found  in  the  fact 
that  political  economy  has  to  do  with  affairs  so  ordinary  and 
familiar    that    men,    in  general,  feel  themselves  competent, 
irrespective  of  study  or  of  special  experience,  to  form  opinions 
regarding  them.      The  more  closely  men  are  concerned  with 
any  matter,  the  harder  it  is  to  maintain  the  authority  of  the 
learned  body  which  assumes  to  engross  scientific  knowledge 
on  the  subject. 

Few  are  presumptuous  enough  to  dispute  with  the  chemist 
or  mechanician  upon  points  connected  with  the  studies  and 
labors  of  his  life  ;  but  almost  any  man  who  can  read  and 
write  feels  at  liberty  to  form  and  maintain  opinions  of  his 
own  upon  trade  and  money. 

Now,  this  is  not  wholly  of  evil.  The  plain  common-sense  of 
unlettered  men  has  not  infrequently  served  as  a  corrective  to 


3°  POLniCAL   ECONOMY. 

economic  doctrines  too  finely  drawn  for  the  purposes  of  legis- 
lation, perhaps  based  upon  a  partial  and  disparaging  view  of 
human  nature.  But  while  thus,  in  the  application  of  political 
economy  to  the  art  of  statesmanship,  the  self-assertion  of  the 
uninstructed  mind  has  not  been  without  its  advantages,  this 

O         r 

disposition  has  certainly  hindered  the  development  of  political 
economy  as  a  science.  The  economic  literature  of  every  suc- 
ceeding year  embraces  works  conceived  in  the  true  scientific 
spirit,  and  works  exhibiting  the  most  vulgar  ignorance  of  his- 
tory and  the  most  flagrant  contempt  for  the  conditions  of 
economic  investigation.  It  is  much  as  if  astrology  were  being- 
pursued  side  by  side  with  astronomy,  or  alchemy  with  chem- 
istry. 

42.  A  third  obstacle  which  political  economy  encounters 
arises  from  the  use  of  terms  derived  from  the  vocabulary  of 
every-day  life,  such  as  value,  exchange,  wealth,  rent,  profits — 
with  some  of  which  are  associated  in  the  popular  mind  con- 
ceptions inconsistent  with,  or,  at  times,  perhaps  antagonistic 
to,  those  which  are  in  the  view  of  the  writer  on  economics. 
Thus,  as  we  have  seen,  the  economist  uses  the  word,  value,  in 
the  single  sense  of  power-in-exchange.  Common  speech  makes 
every  thing  valuable  which  is  useful,  desirable  or  meritorious, 
irrespective  of  the  consideration  whether,  by  reason  of  its 
scarcity  or  the  difficulty  of  securing  it,  this  or  that  article  so 
spoken  of  confers  upon  its  possessor  the  power  of  command- 
ing in  exchange  the  labor,  or  the  products  of  the  labor,  of 
others. 

The  chemist,  the  geologist,  the  botanist,  on  the  other  hand, 
invents  terms  for  the  classes  of  objects  or  the  classes  of  phe- 
nomena which  he  is  to  discuss.  The  reader  carries  with  him 
into  the  discussion  only  the  idea  of  the  thing  which  the  author 
has  created  for  the  purpose.  If  the  writer  be  clear,  and  the 
reader  be  careful,  there  is  no  danger  of  a  failure  of  understand- 
ing. But,  no  matter  how  precise  the  one  may  be  in  definition, 
or  how  close  the  attention  of  the  other,  it  is  inevitable  that  the 
use,  in  economic  discussion,  of  terms  taken  from  the  vocabu- 
lary of  common  life,  should  engender  confusion,  from  the 
practically  irresistible  tendency  of  the  mind  of  the  reader,  and 


DEPARTMENTS    OF    THE    SCIENCE.  31 

«ven,  in  a  degree,  of  the  writer,  to  slip  back  to  the  habitual 
meanings  of  the  words  employed. 

43.  So  strongly  has  this  last   disadvantage  pressed  upon 
some   writers,    that   they   have   been   impelled   to   resort   to 
strange  and  foreign  terms  to  obviate  the  difficulty.      Thus, 
Archbishop  Whately,  treating  political  economy  as  the   sci- 
ence of  exchange,  introduced  the  Greek  word,  Catallactics,  to 
express  the  scope  of  his  inquiry  ;  and  Prof.  Hearn  has  given 
to  his  admirable  book  the  name,  Plutology,  to  escape  the  vague- 
ness of  meaning  which  he  thought  he  saw  in  the  popular  use 
of  the  word  wealth. 

44.  The   Departments   of  Political  Economy All  the 

questions   of  political  economy  are    both  conveniently    and 
appropriately  discussed  under   four   titles  :   Production,  Ex- 
change, Distribution  and  Consumption. 

Of  late,  a  disposition  has  been  manifested,  on  the  part  of 
many  writers,  in  England  and  America,  to  drop  these  familiar 
titles  ;  to  decline  to  admit  any  departments  in  political  econ- 
omy ;  and  to  treat  of  production  and  distribution,  e.  g.,  as  not 
separable  in  economic  discussion. 

This  has  unquestionably  been  stimulated,  if,  indeed,  it  has 
not  been  generated,  by  the  wish  to  bring  political  economy 
into  a  strictly  scientific  form,  with  which  the  recognition 
of  distinct  departments  has  been  deemed  incompatible.  It 
may  be  doubted  whether  our  knowledge  of  the  laws  of  wealth 
has  yet  reached  the  degree  of  completeness  and  assurance 
which  would  allow  a  science  to  be  constituted  after  the  lofty 
ideal  of  these  writers.  Meanwhile  there  seems  reason  to 
believe  that  the  abandonment  of  the  familiar  and  useful  terms, 
production,  exchange,  distribution  and  consumption,  has 
caused  some  very  important  considerations  to  be  overlooked. 
"Nothing,"  said  Edmund  Burke,  "is  so  great  an  enemy 
to  accuracy  of  judgment  as  a  coarse  discrimination  ;  a 
want  of  such  classification  and  distribution  as  the  subject 
admits  of." 

Now,  clearly  the  subject,  wealth,  admits  of  being  considered, 
first,  with  respect  to  the  motives  which  lead  to  its  production 
and  the  conditions  under  which  production  takes  place  ; 


3 2  POLITICAL   ECONOMY. 

secondly,  with  respect  to  the  laws  which  govern  the  exchange 
of  products  in  the  market  ;  thirdly,  with  respect  to  the  forces 
which  distribute  the  product  of  industry,  in  larger  or  smaller 
shares,  among  the  several  classes  of  persons  who  take  pai't  in 
production  ;  fourthly,  with  respect  to  the  influences  which  the 
different  modes  of  consumption  exert  upon  the  disposition 
and  the  ability  to  take  part  in  the  future  production  of 
wealth. 

And  if  wealth  admits  of  being  considered  in  these  several 
aspects,  it  seems  to  me  clear  that  such  a  classification  will  con- 
duce both  to  completeness  of  view  and  to  accuracy  of  judg- 
ment. We  shall  have  occasion  to  note  (Pars.  247-249),  a 
very  striking  instance  of  the  mischief  that  has  arisen 
from  the  neglect  of  this  classification  by  recent  writers  in 
economics. 


PART    II.— PRODUCTION. 


CHAPTER  I. 

LAND  AND  NATURAL  AGENTS. 

45.  What  is  the  Production  of  Wealth  ?— By  this  term  we 
signify  all  those  acts  and  courses  through  which  it   comes 
about   that   an  article  confers  upon  its  possessor  the  power, 
irrespective  of  legal  authority  or  personal  sentiments,  to  com- 
mand, in  exchange  for  itself,  the  labor,  or  the  products  of  the 
labor,  of  others.     Briefly  and  somewhat  elliptically,  we  may 
say,  the  production  of  wealth  means  the  creation  of  values. 

This,  of  course,  does  not  imply  the  creation  of  matter  ; 
it  does  not,  of  necessity,  imply  even  a  change  of  form  in  the 
thing  which  before  had  not  value  but  now  becomes  possessed 
of  it. 

46.  Modes  of  Production. — A  distinguished  German  pro- 
fessor has  classified  values,  in  respect  of  their  origin,  as  time- 
value,  place-value,  and  form-value.     Thus,  a  cake  of  ice  which 
has  no  value  in  the  winter  may  acquire  value  through  being 
kept  over  into  the  following  summer.     The  preservation  of 
the  ice,  whatever  of  effort  and  care  and  expenditure  that  may 
involve,  is  the'  production    of   wealth   to  that  extent.     The 
value  thus  created  would   be,  in  the   phrase  of  Prof.  Knies, 
time-value. 

Again,  a  cake  of  ice  which  has  in  summer  a  certain  value  in 
the  region  where  it  was  first  formed,  say,  Maine,  would  have 
a  much  higher  value  in  a  semi-tropical  region,  where  water 
is  seldom  frozen  at  any  season  of  the  year,  say,  Louisiana. 
The  transportation  of  the  ice,  and  its  protection  from  the  melt- 
ing heat  of  the  climate,  would  be  a  further  production  of 


34  POLITICAL   ECONOMY. 

wealth.  The  value  thus  created  would  be,  in  the  phrase  of  the 
writer  already  quoted,  place-value. 

In  neither  this  nor  the  former  case  has  human  effort  effected 
the  formation  of  the  ice,  which  work  was  the  gratuitous  oper- 
ation of  nature.  The  vast  bodies  of  values  created  by  com- 
merce are  mainly  what  would  be  termed  place-values,  the 
value  created  in  giving  form  to  the  articles  concerned  being 
but  small  in  comparison. 

In  the  creation  of  form-value,  there  is  the  widest  possible 
range  of  operations,  mechanical  or  chemical,  from  that  of  the 
agriculturist,  by  whose  intervention  the  black  earth  of  the 
prairie  is  transmuted  into  golden  grains,  to  that  of  the  lace- 
maker,  whose  whole  industry  is  to  arrange  his  gossamer  into 
fantastic  shapes.  However  little  the  material  may  be  wrought, 
and  by  whatever  agencies  that  little  may  be  effected,  we  say 
that  wealth  is  produced  whenever  value  is  added  or  acquired 
through  any  act  or  any  process. 

47.  The  Agents  of  Production. — The  three  primary  agents 
in  the  production  of  wealth  are  Land,  Labor  and  Capital.* 

48.  Land — The  school  of  economists  in  France,  prior  to  the 
revolution,  who  were  known  as  the  Physiocrats,  insisted  upon 
regarding  land  as  the  sole  source  of  wealth.  According  to  this 
school,  of  which  the  physician  Quesnay  was  the  founder,  labor 
is  iucapable  of  creating  value  except  as  employed  upon  tin- 
soil.     Agriculture  is,  therefore,  the  sole   means  of  increasing 
the  wealth  of  a  nation.     All  applications  of  labor  or  capital  in 
manufacture,  in  transportation,  or  in  trade,  must  be  barren, 
since  there  is  no  net  produce  remaining,  as  in  agriculture,! 
after  the  expenses  of  cultivation  have  been  met. 

There  was  this  much  of  truth  in  the  physiocratic  theory, 

*  Labor  will  form  the  subject  of  Chapter  II  of  the  present  book ;  Capital , 
the  subject  of  Chapter  III.  We  shall  necessarily  speak  of  labor  and  of 
capital  before  reaching  those  topics,  in  their  due  order,  but  what  we  shall 
thus  say  will  be  confined  within  limits  which  will  allow  no  misunder- 
standing on  the  part  of  the  reader. 

f  That  there  is  a  surplus  in  agriculture,  over  the  cost  of  production,  is 
sufficiently  proved  by  the  payment  of  rent  to  the  owner  of  land.  (See 
Chapter  on  Rent.) 


THE    GREAT    LAW    OF   AGRICULTURE.  35 

that  the  raw  material  of  all  manufactures,  the  subject  matter 
of  all  trade  and  transportation,  comes  originally  from  the 
soil  ;  and  its  value  can  not  escape  the  influence  of  the  great, 
comprehensive  principle  to  which  we  give  the  name,  "  the  law 
of  diminishing  returns  in  agriculture,"  the  principle,  namely, 
that  after  a  certain  stage  of  cultivation  has  been  reached,  the 
soil  fails  to  yield  a  proportionally  increased  return  to  new 
applications  of  labor  and  capital.  Since,  then,  this  law  is  so 
far-reaching  and  all-embracing  that  even  the  operations  of 
trade  and  manufacture  do  not  escape  its  influence,  it  requires 
to  be  stated  here  with  great  precision  and  fullness  of  illustra- 
tion. There  is  no  use  in  the  reader  going  on  if  he  does  not 
master  this  principle  in  all  its  bearings.  He  might  just  as  well 
stop  short  here,  for,  as  Prof.  Cairnes  has  said,  if  this  prin- 
ciple did  not  exist,  "  the  science  of  political  economy  would 
be  as  completely  revolutionized  as  if  human  nature  itself  were 
altered." 

49.  The  Great  Law  of  Agricultural  Production. —  In  any 
given  condition  of  the  art  of  agriculture,  there  is  a  limit  to 
the  amount  of  labor  and  of  capital  which  can  advantageously 
be  employed  or  expended  upon  a  given  area  of  land.     If,  after 
this  limit  has  been  reached,  more  laborers  are  employed,  each 
will  have  to  be  content  with  a  smaller  quantity  of  produce  at 
harvest.     And,  in  the  same  way,  if  more  capital  be  expended 
upon  the  land,  each  dollar  of  capital — whether  in  the  form  of 
hoes  or  carts  or  oxen,  will  make  a  smaller  addition  to  the  crop 
of  the  year  than  a  dollar  expended  before  the  point  of  dimin- 
ishing returns  was  reached.     We  shall  sufficiently  illustrate 
the  principle  if  we  confine  our  view  to  applications  of  labor, 
assuming  the  amounts  of  capital  to  increase  correspondingly 
with  the  number  of  laborers. 

50.  Increasing  Returns. — Let  us  suppose  that  ten  labor- 
ers, with  a  certain  outfit  of  tools  and  implements,  are  engaged 
in  cultivating,  in  common,  a  tract  of  land  of  a  hundred  acres, 
producing  2,000  bushels  of  wheat  a  year,  being  twenty  bushels 
per  acre,  and  two  hundred  bushels  per  capita.     Now,  let  it  be 
supposed  that  two  new  laborers  appear  and  join  themselves  to 
this  company.     What  will  be  the  crop  of  that  year  for  the 


3<>  POLITICAL   ECONOMY. 

united  twelve,  assuming  agricultural  conditions  constant? 
Will  it  be  2,400  bushels,  or  more,  or  less  ?  The  answer  to  this 
question  will  depend  upon  whether  the  point  of  diminishing 
returns  has  been  reached  with  the  original  ten  laborers,  or 
not.  If  not,  the  crop  of  the  pew  year  may  be  not  merely 
2,400  bushels,  but  even  more,  say,  2,500  bushels,  since,  the 
limit  of  the  chemical  capabilities  of  the  soil  not  being  reached, 
the  mechanical  advantages  which  result  from  the  division  of 
labor,  to  be  explained  under  a  subsequent  title,  will  enable 
the  twelve  laborers  to  raise  more,  per  man,  than  the  ten 
could  do. 

51.  Diminishing  Returns. — But  if  the  limit  indicated  in 
paragraph  49  had  been  reached  when  the  ten  were  laboring 
together  upon  the  land,  the  new  crop  will  fall  short,  much  or 
little,  of  2,400  bushels  ;  and  consequently,  each  of  the  twelve 
laborers  will  have  to  be  content  with  less  than  200  bushels. 
Let  us  suppose  the  crop  to  amount  to  2,280  bushels,  each  acre 
producing  22.8  bushels.  Each  man  will,  then,  receive  190 
bushels  as  his  share. 

Now,  let  it  be  supposed  that  three  additional  laborers  are 
received  into  the  company.  Will  the  crop  now  be  3,000  bush- 
els, or  200  bushels  per  man  of  the  fifteen  ?  Clearly  not.  Will 
it  prove  to  be  2,850  bushels,  28.5  bushels  per  acre,  giving  each 
man  190  bushels  as  his  share,  as  before  ?  Not  if  the  industrial 
character  of  the  laborers  and  the  knowledge  of  the  art  of  agri- 
culture undergo  no  change.  If  twelve  laborers  make  the  land 
yield  but  22.8  bushels  per  acre,  the  fifteen  can  not  make  the 
same  amount  of  land  yield  28.5  bushels  per  acre.  The  crop 
will  be  something  less  than  that :  say,  27  bushels  per  acre, 
which  wTould  give  each  man  180  bushels. 

If,  again,  we  suppose  five  additional  laborers  to  join  the 
company,  the  crop  will  not  be  40  bushels  per,  acre  ;  as  would 
be  necessary  in  order  to  give  each  man  200  bushels,  which  the 
original  ten  received  ;  or  38  bushels  per  acre,  as  would  be 
necessary  in  order  to  give  each  man  190  bushels  which  the 
first  twelve  received  ;  or  even  36  bushels  per  acre,  as  would  be 
necessary  in  order  to  give  each  man  180  bushels,  which  the 
first  fifteen  received  ;  but  the  crop  could  not  be  forced  by  the 


DIMINISHING    RETURNS. 


37 


labor  of  twenty  laborers  above,  say,  32  bushels  per  acre,  which 
would  give  each  of  the  laborers  160  bushels. 


No.  of  laborers. 

No.  of  bushels  per 
acre. 

Total  No.  bushels  on 
the  whole  tract. 

Each  laborer's 
share. 

10 

20 

2000 

200 

12 

22.8 

2280 

190 

15 

27 

2700 

180 

20 

32 

3200 

160 

In  like  manner,  it  would  be  found  that,  however  far  the 
accession  of  new  laborers  were  carried,  each  new  arrival  would 
result  in  reducing  the  quantity  of  grain  which  each  laborer  of 
the  entire  body  could  obtain  by  a  year's  work.  This  reduc- 
tion of  the  per  capita  produce  would  go  forward,  at  first  slowly 
and  afterwards  rapidly,  until  the  result  would  be  reached,  that, 
whereas  the  original  company  lived  comfortably,  or  even  lux- 
uriously, the  forty  or  fifty  who  had  come  to  work  on  the  same 
area  would  be  found  living  wretchedly,  perhaps  reduced  to 
the  verge  of  starvation. 

52.  This  Condition  is  Universal. — About  the  universal  ap- 
plication of  this  condition  there  can  be  no  intelligent  question. 
There  is  not  an  acre  of  land  on  the  face  of  the  earth  on  which  6fr 
and  afterward  120  bushels  of  wheat  can  be  raised  by  the  appli- 
cation, first  of  twice,  and  afterward  of  four  times,  the  amount 
of  labor  needed  to  produce  30  bushels.  At  some  time  in  the 
progressive  cultivation  of  every  field,  sooner  or  later,  accord- 
ing to  the  state  of  agriculture,  a  stage  will  be  reached  after 
which  every  successive  increment  of  the  product  will  be 
obtained  only  through  a  more  than  proportional  expenditure 
of  labor.  This  condition  applies,  not  only  to  the  cultivated 
field,  but  to  grazing  lands,  to  the  mine,  the  forest  and  the  sea. 
It  governs  the  cost  of  producing  fish  and  whale  oil ;  fuel  and 
timber  for  manufactures  ;  coal,  iron  and  copper,  for  the  fur- 
nace and  the  forge  ;  wool  for  clothing,  and  the  carcasses  of 
cattle  and  sheep  for  food.  The  operation  of  the  principle  is 
in  some  of  these  cases  obscured  by  the  accident  of  great  dis- 
coveries of  natural  stores  and  resources,  or  important  inventions. 


3  8  POLITICAL  ECONOMY. 

in  the  chemical  or  mechanical  arts  involved  in  the  extraction 
of  these  articles  for  the  use  of  man.* 

53.  The  Law  of  Diminishing  Returns  in  Application  to 
Manufactures. — Such  is  the  law  of  diminishing  returns  in  agri- 
culture. As  has  been  stated,  no  part  of  the  field  of  produc- 
tion but  is  overshadowed  by  this  great  dominating  condition 
of  human  life  and  labor.  Not  only  is  the  whole  body  of  agri- 
cultural produce  subject  to  its  influence,  but  the  raw  material 
of  all  manufactures,  and4he  subject  matter  of  all  trade  and 
transportation,  coming  originally  from  the  soil,  are  affected  in 
value  by  the  increasing  difficulty  which  attends  each  suc- 
cessive increment  of  product. 

But  while  no  part  of  the  field  of  production  lies  beyond  the 
shade  of  this  primary  condition,  various  classes  of  products 
are  affected  by  it  in  very  different  degrees,  according  as  they 
stand  nearer  to,  or  further  from,  agriculture  or  the  purely 
"  extractive  "  industries.  Thus,  every  product  of  iron,  is  in 
some  measure,  subject  to  the  influence  of  this  condition.  If 
a  greater  and  still  greater  quantity  of  iron  ore  is  to  be  derived 
from  a  'given  number  of  known  mines,  this  involves  mining 
at  a  lower  and  still  lower  depth,  which,  in  turn,  involves  a 
greater  expenditure  of  labor  in  hoisting,  ventilating,  pump- 
ing, etc. 

But  it  is  only  the  iron,  as  ore,  or  as  an  ore  product,  which 
is  subject  to  this  condition.  If  a  hundred  weight  of  ore  be 
rendered  into  pig  iron,  the  cost  of  the  latter  will  be  very  much 
increased  by  the  necessity  of  mining  at  an  increasing  depth. 
If  the  pig  iron  be  taken  to  the  forge  or  foundry,  and  there 
rendered  into  plate  iron  or  stove  castings,  the  cost  of  the  latter 
will  be  enhanced  but  little  if  any  more,  since  the  production 
of  wealth,  (i.e.,  the  creation  of  values)  by  mechanical  pro- 

*  It  has  been  shown  that  this  principle  of  increasing  difficulty,  or  of 
diminishing  returns,  applies  even  to  the  harvesting  of  crops.  Roscher 
quotes  from  Von  Thunen  a  table  showing  the  experience  of  agricultural 
laborers  in  attempting  to  glean  all  the  potatoes  of  afield.  Supposing  100 
scheffels  to  represent  the  quantity  grown  on  a  given  area,  a  single  laborer 
could  gather  30  in  a  day,  while  the  average  of  the  first  four  laborers  would 
be  20.  But  the  fifth  man  would  only  gather  6. 6  ;  the  sixth  man  only 
4.4  ;  the  seventh  man  only  3,  and  so  on. 


DIMINISHING   RETURNS.  39 

cesses,  is  not  subject  to  the  law  of  diminishing  returns.  Ten 
men  in  mechanical  pursuits  can  produce  ten  times  as  much  as 
one.  If,  again,  the  iron  be  rendered  by  successive  processes 
into  fine  screws,  knife-blades  or  watch  springs,  the  first  cost  of 
the  material  becomes  small,  in  comparison  with  the  cost  of 
the  labor  expended  in  working  and  perfecting  it. 

Mr.  Babbage,  in  1832,  estimated  that  bar  iron  of  the  value 
of  $1  became  worth  when  manufactured  into — 

Slit  iron  for  rails         .         .         .         .         $     1.10 
Horseshoes          .....  2.55 

Wood  saws         .          .         .         .         .  14.28 

Scissors,  best      .          .         .         .         .  446.94 

Penknife  blades  .         .         .         .  657.14 

It  is  evident  that  the  only  part  of  the  cost  of  the  $657 
worth  of  knife  blades,  here,  which  is  affected  by  the  condi- 
tion of  diminishing  returns,  is  the  original  dollar's  worth  of 
bar  iron,  and  the  cost  of  the  bushel  or  two  of  coal  necessary 
to  produce  the  mechanical  power  and  the  melting  and  temper- 
ing heat  for  the  successive  processes  of  manufacture.  An 
increase  of  the  difficulty  of  mining  which  should  double  the 
price  of  bar  iron  might  affect  the  price  of  scissors  very 
slightly. 

54.  So  far,  then,  as  human  wants  can  be  met  through  the 
elaboration  of  the  raw  materials  taken  from  the  soil,  there  is 
a  constant  tendency  to  a  greater  and  still  greater  satisfaction 
of  those  wants,  through  the  perfection  of  mechanical  and 
chemical  processes.  But,  after  all,  the  chief  concern  of  the 
masses  of  the  people  is  with  the  cost  of  the  raw  materials  of 
food,  clothing  and  shelter.  The  bulk  of  their  consumption  is 
of  coarse  forms  of  agricultural  produce,  simply  prepared.  It 
is  of  no  advantage  to  the  laborer  that  at  a  small  additional 
expense  he  can  have  his  cotton  wrought  into  forms  which  a 
century  ago  would  have  excited  the  admiration  of  a  court,  if 
all  the  cotton  he  can  procure  is  not  enough  to  keep  him 
warm. 

55.  The  Soil,  a  Fund  for  the  Endowment  of  the  Human 
Race. — Subject  always  to  the  condition  which  has  been 
described  in  the  foregoing  paragraphs,  the  soil,  consisting  of 


4°  POLI7ICAL  ECONOMY. 

rock  pulverized  at  one  period  or  another  of  the  world's  exist- 
ence, constitutes  the  sole  original  endowment  of  the  human 
race.  The  different  varieties  of  soil  possess  the  capability  of 
rewarding  human  labor  in  very  different  degrees  ;  but  every 
kind  of  decomposed  rock  will,  if  treated  with  due  quantities 
of  water,  yield  vegetables,  grains  or  fruits  for  man's  food, 
fibers  for  his  clothing,  timber  to  construct  his  house,  fuel  to 
warm  it.  Even  the  undecomposed  rock  which  forms  the 
crust  of  the  earth,  constitutes  a  store  from  which  human 
wants  may  be  supplied,  though  in  smaller  degree  and  with 
greater  pains.  Metals  and  minerals,  of  an  almost  infinite 
number  of  uses,  mechanical,  chemical,  physiological,  are 
extracted  by  the  aggressive  enterprise  of  man  from  the  very 
rock  which  has  withstood  unbroken  all  the  effects  of  fire  and 
frost,  earthquake  and  torrent.  It  is  wholly  upon  this  natural 
endowment  that  the  race  have  lived  in  the  past ;  and  it  is  the 
extent  of  this  endowment  which  is  to  determine  the  maximum 
number  the  race  can  reach,  aud  the  longest  period  of  time 
through  which  the  race  can  survive.  Now,  of  this  fund  with 
which  mankind  are  endowed,  we  note,  in  addition  to  the  lim- 
ited capability  of  production  within  a  given  season,  upon  a 
given  area,  already  dwelt  upon,  that  the  fund,  in  the  present 
state  of  the  art  of  agriculture,  is  subject  to  waste  and  possible 
ultimate  exhaustion. 

56.  Exhaustion  of  the  Soil. — Those  writers  who  advocate 
what  is  known  as  the  policy  of  Protection,  have  made  great 
use  of  the  fact  that  the  soil  is  subject  to  exhaustion  ;  that  its 
productive  capabilities  are,  in  the  strict  sense  of  the  word,  a 
fund,  from  which  so  much  and  no  more  can  be  taken.  Besides 
the  outright  destruction  of  fertility  due  to  wanton  abuse  of 
nature,  the  ordinary  prudent  use  of  the  soil  steadily  dimin- 
ishes the  fund  of  productive  essences  from  which  future  gen- 
erations must  draw  their  supplies  of  food,  clothing  and  shelter. 
"  For  every  fourteen  tons  of  fodder  carried  off  from  the  soil," 
says  Prof.  Johnston,  "  there  are  carried  away  two  casks  of 
potash,  one  of  soda,  a  carboy  of  vitriol,  a  largo  demijohn  of 
phosphoric  acid  and  other  essential  ingredients." 

But   what   becomes   of   the  materials   thus   taken    away? 


EXHAUSTION  OF    THE    SOIL.  41 

Surely,  if  the  doctrines  of  modern  physical  science  are  true, 
no  force  can  be  lost  out  of  nature  ;  consumption  must  be  fol- 
lowed by  production  in  other  forms  ;  or,  rather,  consumption 
is  nothing  but  the  production  of  new  forms. 

It  is  true  that  no  force  can  be  lost  out  of  nature  ;  yet  force 
may  be  transmuted  from  forms  in  which  it  ministers  to  human 
wants  into  forms  in  which  it  serves  no  purpose  useful  to  man, 
;is,  for  example,  when  your  house  burns  down  and  goes  off 
into  the  air,  in  sudden  heat  and  with  a  great  smoke  ;  or  a  cer- 
tain amount  of  force  may  be  so  dissipated  that  men  can  no 
longer  employ  it  for  their  advantage.  The  productive  essen- 
ces taken  from  the  soil,  in  the  form  of  food  for  man  and  beast, 
may,  without  being  diminished  in  actual  amount,  be  so  scat- 
tered as  to  be  unavailable  for  the  nourishment  of  vegetable 
life  in  the  future. 

"Whenever,"  says  Prof.  R.  E.  Thompson,  "the  products 
•of  the  soil  are  consumed  in  the  vicinity  of  the  farm,  the  far- 
mer will  have  at  hand  the  means  of  making  such  a  return  to 
the  soil  as  will  keep  up  and  even  increase  its  fertility.  But 
whenever  they  are  transported  to  a  considerable  distance  for 
consumption,  the  power  to  make  an  adequate  return  to  the 
soil  is  seriously  diminished,  if  not  absolutely  destroyed.  The 
richest  soil  can  not  long  sustain  such  a  process  of  exhaustion, 
if  its  proprietors  are  engaged  in  sending  its  natural  wealth 
<>v*-r  land  and  sea  to  a  distant  market". 

57.  Free  Trade  and  Exhaustion  of  the  Soil. — It  is  upon 
this  the  protectionist  bases  his  chief  argument.  He  claims 
that  local  markets  should  be  everywhere  created  to  prevent 
what  he  calls  "  earth-butchery."  The  tendency  to  make  new 
countries  the  magazines  from  which  older  countries  draw  their 
supplies  of  raw  materials  should  be  crossed  and  checked  by 
legal  impositions,  not  so  much  upon  the  exportation  of  the 
raw  materials  from  the  former,  as  on  the  importation  of  fin- 
ished products  from  the  latter.  Every  considerable  community 
should  be  driven,  against  the  impulses  of  immediate  interest, 
to  fashion  for  its  own  consumption  the  materials  produced  from 
its  own  soil. 

Xo\v,  the  most  obvious  and  natural  answer  to  this  is,  that 


42  POLITICAL   ECONOMY. 

men  are  the  best  judges  of  their  own  interests,  and  that  pro- 
ducers and  consumers  should  be  left  to  make  their  bargains 
unhindered.  But  it  will  appear,  in  the  further  progress  of  our 
inquiry,  that  the  interests  of  individuals  do  not  always  consist 
with  the  interests  of  the  community.  This  is  clearly  seen,  in 
the  case  of  the  felling  of  the  forests,  where  immense  injury 
may  be  done  to  the  soil,  an  injury  perhaps  that  is  practically 
irreparable,  through  the  selfish  action  of  a  few  persons  seek- 
ing their  own  immediate  advantage. 

If  the  same  is  not  true  in  an  equal  degree  of  the  abuse  of 
the  soil  through  an  excessive  drain  upon  its  productive 
essences,  due  to  the  passion  for  sudden  gain  inducing  the  cul- 
t'vators  to  take  much  from  the  ground  and  put  back  little, 
this  is  due  to  two  facts.  First.  The  arable  land  of  a  country 
is  generally  owned  by  a  larger  number  of  persons  than  the 
wood  land,  so  that  more  of  those  who  would  suffer  by  the 
effects  of  an  abuse  of  nature  are  in  a  position  to  prevent  abuse. 
Secondly.  The  consequences  of  "  earth-butchery "  in  the 
destruction  of  forests  are  more  instant  and  less  remediable 
than  in  the  waste  of  the  soil  in  cultivation. 

58.  Some  Waste  Unavoidable. — The  liability  to  exhaus- 
tion of  the  soil,  through  exportation  of  its  produce,  is  a  fact 
properly  to  be  taken  into  account.  The  importance  which 
should  be  attributed  to  the  fact  is  a  matter  of  question.  I 
believe  the  protectionist  writers  generally  give  it  more  weight 
than  it  deserves,  chiefly  through  omitting  two  considera- 
tions. 

First.  Even  the  building  up  of  manufacturing  and  commer- 
cial towns  would  not  prevent  a  large  part  of  the  waste. 

In  nearly  all  such  towns,  when  of  considerable  size,  the 
excreta  of  men  and  even  of  animals,  and,  also,  to  a  great 
extent,  the  refuse  of  kitchens  and  of  manufactures,  are  thrown 
into  the  streams  and  carried  out  to  sea.  The  utilization  of 
sewage,  on  any  large  scale,  has  never  yet  been  made  profita- 
ble. It  has  been  done  as  a  matter  of  experiment,  as  a  matter 
of  sentiment,  or  to  prevent  the  defilement  of  rivers  ;  but 
almost  invariably  it  costs,  in  the  present  state  of  the  arts,  more 
than  a  hundred  cents  on  the  dollar's  worth  of  soil-dressing 


RENEWAL    OF    THE    SOIL.  43 

obtained.  Some  waste  of  this  kind  seems  inseparable  from 
the  human  occupation  of  the  earth. 

59.  Natural  Renewal  of  the  Soil. — Secondly.  The  protec- 
tionist's argument  overlooks  the  consideration  that,  in  addi- 
tion to  the  progress  of  invention,  postponing,  though  it  may 
not  avert,  exhaustion,  a  continuous  addition  is  being  made  to 
the  soil  available  for  the  raising  of  food,  through  the  decom- 
position of  rocks  and  the  formation  of  rockdust  (weathering). 
The  mountain  loses  of  its  substance  by  the  force  of  frosts  and 
floods,  and  the  valleys  are  enriched  with  the  material  thus 
worn  away.  Even  the  stones  that  lie  in  the  earth,  a  mere 
encumbrance  to  cultivation,  yield  to  the  unceasing  action  of 
the  elements  that  surround  them  and  give  up  to  the  soil  the 
same  properties  to  which  its  pristine  fertility  was  due.  More- 
over, the  conversion  of  the  nitrogen  of  the  atmosphere  into 
nitrates  (nitrification),  is  continually  going  on.  "  In  rare 
cases,"  writes  one  of  the  most  eminent  of  agricultural  chem- 
ists, "  these  agencies  alone  maintain  a  high  state  of  fertility, 
as  where  red-rock  easily  disintegrates  and  is  exceptionally  rich 
in  plant  food,  or  where  plains  are  fertilized  by  the  matter 
brought  from  mountains  and  deposited  by  streams.  More 
commonly,  these  natural  causes  maintain  a  moderate  produc- 
tiveness only,  and  require  tillage,  irrigation  and  manuring  to 
raise  the  production  to  a  high  pitch  :  tillage,  irrigation  and 
manuring  all  operating  to  accelerate  and  intensify  rock-disin- 
tegration and  nitrification  ;  irrigation  and  manuring  acting 
also  by  replacing  removed  matters. 

"  Any  region  that  has  once  been  fertile  for  a  period  of  fifty 
years,  under  a  given  system  of  management,  may  remain  fer- 
tile under  that  system  forever,  unless  the  soil  is  removed  or 
buried  by  flood,  or  unless  the  climate  becomes  unpropitious."* 

*Prof.  S.  W.  Johnson,  of  Yale  College,  Director  of  the  Connecticut 
Agricultural  Experiment  Station. 

Prof.  Johnson  further  remarks  :  ' '  The  crops  that  astonish  us  by  their 
heavy  acreage-yield  are  not  the  crops  that  feed  the  nations.  The  wheat 
fields  and  corn  fields  of  '  the  West '  yield  but  15  bushels  of  wheat  and 
but  40  to  50  bushels  of  corn.  The  hay,  the  pasturage,  which  make  up 
the  grand  total  of  our  forage,  are  obtained  at  an  average  rate  of  one  ton, 


44  POLITICAL   ECONOMY. 

CHAPTER  II. 

LABOR. 

60.  The  Hunter  State. — The  second  great  agent  in  the  pro- 
duction of  wealth  is  human  labor.     Up  to  a  certain  low  point, 
the  grosser   human   wants   are    supplied  by   the   bounty  of 
nature.     So  long  as  this  continues,  value   does  not  emerge  ; 
wealth  is  not  produced.     Man  may  live  like  the  squirrels  or 
the  monkeys,  from  the  spontaneous  fruits  of  shrubs  and  trees  ; 
or,    like  other  large  and  fierce  animals,  he  may  prey  upon 
smaller  and  weaker  species,  which,  in  their  turn,  are  nourished 
without  care  by  grasses  or  nuts.     So  long  as  races  of  men 
subsist  in  this  fashion,  they  are  doomed  to  remain  few  in  num- 
bers, low  in   character,  subject  to   occasional  visitations   of 
famine,  the  victims  of  ferocious  enemies  among  the  higher 
orders  of  animals,  or  of  internecine  war  in  the  unceasing  strug- 
gle for  existence.     Political  economy  has  no  more  to  do  with 
men  in  such  a  state  than  with  the  monkeys  who  compete  with 
each  other  for  cocoanuts  and  bananas. 

61.  The  Pastoral  State. — Labor,  in   the   economic   sense, 
first  clearly  appears  in  the  pastoral  state.     Here  men  no  longer 
subsist  on  the  bounty  of  nature,  or  perish  miserably  and  help- 
lessly when  that  bounty  fails.     They  no  longer  hunt  for  nuts 
and  roots  and  fruits  which  have  grown  without  care  and  with- 
out labor,  or  for  casual  animals  nourished  upon  the  spontane- 
ous  products   of  the   soil,  bred  and  reared  without  human 
intervention.     In  the  pastoral  state,  tribes  tame  the  cattle  and 
sheep  and  goats  and  asses  which  once  ran  wild,  training  them 
to  be  easily  guided,  handled  and  controlled,  caring  for  their 

per  acre.  The  40  bushels  of  wheat,  90  of  corn,  2£  tons  of  hay,  that  good 
farmers,  in  long  cultivated  regions,  gather,  per  acre,  from  small  areas, 
are  exceptional.  For  these  exceptional  natural  fertility,  or  natural 
manuring,  or  else  exceptional  artificial  fertilization  are  required  ;  but  for 
the  agricultural  production  of  the  world  "  im  grossen  und ganzen"  small 
crops  per  acre,  fed  mostly  by  natural  disintegration  of  the  soil  and  nat- 
ural nitrification,  as  by  natural  rainfall  and  natural  supplies  of  carbonic 
acid  and  solar  energy,  are  the  rule." 


DEVELOPMENT   OF   AGRICUL7URE.  45 

subsistence,  driving  them  to  fresh  pastures,  digging  wells  or 
diverting  streams  to  give  them  a  constant  supply  of  water, 
even  cutting  the  abundant  food  of  summer  and  curing  and 
storing  it  against  the  season  of  scarcity.  The  hunter  pro- 
tects the  animals  he  has  tamed  against  those  that  still  remain 
savage,  and  folds  or  houses  them  against  severe  storms  and 
protracted  cold  ;  he  bleeds,  blisters  and  physics  them  in  sick- 
ness ;  superintends  their  breeding  after  their  kind,  and  cares 
for  the  young  far  beyond  the  power  or  the  wisdom  of  the 
dam.  By  all  these  forms  of  labor,  men  in  the  pastoral  con- 
dition make  that  to  be  wealth  which  in  a  state  of  savagery 
was  no  wealth. 

62. — And  of  this  social  condition  we  note  two  things  : 
First,  population  increases  largely.  It  requires  many  thousands 
of  acres  to  support  a  family  of  hunters  ;  as  many  hundreds 
will  support  a  family  of  shepherds.  The  animal  that  in  the 
one  condition  yielded,  once  for  all,  a  carcass  of  three  or  four 
hundred  pounds  net,  now  returns,  for  the  little  care  given  her, 
five  hundred  gallons  of  milk  every  year,  making,  if  the  owner 
pleases  to  expend  some  additional  labor,  three  hundred  pounds 
of  cheese.  Another  animal  that  once  yielded  a  carcass  of 
fifty  pounds,  covered  with  a  pound  of  coarse  stiff  hair,  now 
parts  every  year  with  four  or  five  pounds  of  soft,  flexible 
wool,  susceptible  of  being  wrought  into  forms  of  the  greatest 
beauty  and  usefulness. 

Secondly,  the  subsistence  derived  by  communities  in  the 
pastoral  state  is  not  only  more  ample  ;  it  is  also  far  more 
secure.  Men  are  no  longer  subject  to  be  swept  by  famine, 
as  by  a  hurricane,  from  the  face  of  the  earth.  In  the  main, 
subsistence,  and  with  it  existence,  has  ceased  to  be  precarious  ; 
it  has  become  constant  and  calculable. 

63.  Agriculture. — The  next  economic  state  is  reached  in 
agriculture.  Man  no  longer  skims  the  surface  of  the  land  ; 
he  plows  into  the  depths  of  the  soil,  and  brings  up  the  pro- 
ductive energies  that  lay  hidden  far  below  the  roots  of  the 
grass  on  which  the  cattle  were  wont  to  graze.  And  now, 
where  hundreds  of  acres  were  required  to  support  a  family, 
as  many  score  suffice.  Population  rapidly  increases.  Man 


46  POLITICAL   ECONOMY. 

and  beast  no  longer  wander  to  seek  their  food.  Food  is 
brought  to  them.  Tribes  cease  to  shift  their  place  from 
season  to  season  as  the  exigencies  of  pasture  demand.  The 
cottage  replaces  the  tent.  New  wants  are  felt,  now  that  men 
are  not  obliged  to  carry  around  with  them  all  they  own. 
New  and  varied  forms  of  wealth  appear. 

To  do  only  the  things  which  formerly  were  done,  would 
require  less  exertion,  and  consequently  values  tend  to  dimin- 
ish, since  value  measures,  speaking  roughly,  the  difficulty  of 
attainment  ;  but  more  things  now  require  to  be  done  ;  then- 
are  more  who  feel  wants,  and  each  of  them  feels  mon-  wants, 
than  formerly,  and  hence  the  body  of  values  increases,  in  the 
face  of  improvements  in  the  arts  which  tend  to  substitute 
gratuity  for  value. 

64.  Two  Factors  of  Labor  Power. — The  labor  power  of 
any  community,  whether  in  the  pastoral  or  in  the  agricultural 
state,  or  in  the  higher  state   where  manufactures  and  com- 
merce enter,  is  compounded  of  two  factors,  that  derived  from 
the  efficiency  of  the  individual  laborer,  and  that  derived  from 
what    we    call   by    the   somewhat   unsatisfactory   term,    the 
division  of  labor,  which  embraces  the  joint  action  of  men  in 
production,  the  differentiation   of   productive   processes,  the 
specialization  of  trades  and  the  organization  of  product  he- 
forces. 

65.  The  Efficiency   of  the    Individual    Laborer. — The 
degree  in  which  the  labor  of  an  individual  shall  be  efficient  in 
the  creation  of  values,  i.  e.,  the  production  of  wealth,  depends 
upon  several  causes. 

First :  His  inherited  strength,  his  original  endowment  of 
physical  force.  This  endowment  varies  greatly,  not  only  as 
between  individuals  of  the  same  community,  but  as  between 
communities,  races  and  nations.  Into  the  causes  of  the 
differences  in  this  respect  existing,  it  is  not  necessary  to  enter. 
That  inquiry  belongs  to  the  physiologist  and  the  ethnologist. 
The  economist  has  to  do  only  with  the  fact.  In  the  matter 
of  sheer  lifting-strength  alone,  the  individuals  of  one  race 
may,  on  the  average,  surpass  those  of  other  races  by  fifty,  one 
hundred  or  two  hundred  per  cent. ;  while  in  the  matter  of  the 


THE    LABORER'S    FOOD.  47 

use  of  that  strength,  in  operations  at  once  difficult  and  deli- 
cate, the  range  of  existing  differences  is  very  much  wider. 

66.  Relation  of  Pood  to  Industrial  Efficiency. — A  second 
reason  for  the  higher  industrial  efficiency  of  the  laborers  of 
one  class  or  nation  than  belongs  to  those  of  another,  is  found 
in  the  quantity  and  quality  of  the  food  consumed  by  the 
laborers  of  the  two  classes  or  nations,  respectively.  The 
human  stomach  bears  much  the  same  relation  to  the  whole 
frame  as  the  furnace  to  the  steam  engine.  In  the  one,  as  in 
the  other,  must  all  the  forces  which  are  to  drive  the  machine 
be  generated.  In  the  one,  as  in  the  other,  the  force  gener- 
ated will,  within  certain  limits,  increase  with  the  material 
supplied.  With  more  fuel,  the  engine  will  do  more  work. 
With  more  food,  the  man  will  do  more  work. 

But  not  proportionally  more.  To  a  great  extent  the  return 
made,  in  force,  to  the  introduction  of  new  fuel  into  the  fur- 
nace varies  according  to  a  principle  which  is  strongly  analo- 
gous to  that  which  governs  the  returns  made,  in  crops,  to  the 
application  of  new  labor  to  land.  Thus,  if  we  suppose  that, 
with  a  furnace  of  a  given  height  of  chimney,  3  Ibs.  of  coal  to 
the  square  foot  of  grate  surface,  are  supplied,  we  should  have, 
resulting  from  the  consumption,  a  certain  amount  of  force 
available  to  do  the  engine's  work.  But  that  amount  would  be 
small.  A  great  part  of  all  the  heat  generated  would  be  lost 
by  radiation  in  the  tubes  and  through  the  cooling  effect  of 
the  water  in  the  boilers.  Now,  suppose  that,  instead  of 
3  Ibs.,  6  are  consumed.  Will  the  efficiency  of  the  engine  be 
doubled  merely?  No,  the  engine  will  do  easily  three  times 
as  much  work.  If  9  Ibs.  are  used,  the  power  will  be  still  fur- 
ther increased,  not  only  positively  but  proportionally,  that  is, 
there  will  not  only  be  more  power,  but  more  power  for  each 
pound  of  coal.  If  12  Ibs.  are  consumed,  there  may  be  a  still 
further  addition  to  the  force  generated,  not  only  positively 
but  proportionally.  It  might  be  easily  found  that,  with  this 
amount  of  fuel,  the  resulting  force  would  be,  not  four  times 
as  much  as  with  3  Ibs.,  but  eight  or  ten. 

The  parallelism  which  exists  between  the  econom/of  apply- 
ing labor  to  land  and  the  economy  of  supplying  fuel  to  the 


48  POLITICAL  ECONOMY. 

furnace,  is  broken  at  one  point.  Labor  may  be  applied  to  land 
indefinitely  with  an  increase  of  absolute,  though  not  always 
of  relative,  production.  But  coal  can  not  be  added  indefinitely 
to  the  fire  beneath  the  boiler. 

67.  The  economy  of  supplying  food  to  the  human  machine  is 
in  a  high  degree  analogous.   If,  for  example,  a  laborer  were  sup- 
plied with  only  100  oz.,  per  week,  of  a  certain  kind  of  food,  the 
laboring  power  which  would  be  generated  by  the  digestion  and 
assimilation  of  that  food  would  be  very  slight.  After  a  course 
of  such  diet,  the  man  would  crawl  feebly  to  his  task  ;  would 
work  with  a  very  slight  degree  of  energy  when  he  first  started 
out,  and  would  soon  become  exhausted.     Were  125  oz.  given 
to  the  laborer,  he  would  be  able,  with  no  greater  strain  on  his 
constitution,  to  accomplish  an  amount  of  work  which  would  be 
not  merely  one  quarter  more,  but  largely  in  excess  of  it.     He 
would  perhaps  be  able  to  do  one-half  as  much  more.    Were  his 
subsistence  to  rise  to  150  oz.  there  would  be  a  still  further  gain. 
His  efficiency  would  be  to  his  efficiency  when  receiving  125  oz., 
not  as  6  to  5,  but  as  7,  or  perhaps  8,  to  5.     With  150  oz.,  the 
laborer's  diet  might  be  regarded  as  sufficient  for   comfort, 
health  and  a  reasonable  development  of  muscular  strength. 
Let  the  amount  of  food  be  carried  up  to  200  oz.,  and  we 
should  have  a  liberal,  generous  diet,  ample  to  supply  all  the 
waste  of  the  tissues,  and  to  keep  the  fires  of  the  body  burning 
briskly,  generating  force  enough  to  allow  the  laborer  to  put 
forth  great  muscular  exertions  through  long  periods  of  time. 

Up  to  a  certain  limit,  then,  with  food  as  with  fuel,  the  true 
economy  of  consumption  is  found  in  increasing  the  supply. 
Niggardliness  is  waste,  and  waste  of  the  worst  sort.  But* 
just  as  there  is  a  maximum  limit  with  the  fuel,  so  there  is  with 
food.  After  that  limit  is  reached,  the  increase  of  food  does 
not  imply  a  proportional  increase  of  force,  if,  indeed,  any 
increase  at  all  ;  and  after  a  certain  still  higher  point  is  reached, 
the  increase  of  food  brings  mischief. 

68.  Under-fed  Laborers. — The    consideration    here    pre- 
sented is  of  great  importance  in    explaining  the  varying  effi- 
ciency of  labor.     Probably   the   inhabitants  of   the   United 
States  constitute  the  only  large  population  in  the  world  who 


THE    LABORER'S   FOOD.  49 

<\re  thoroughly  well-nourished  ;  that  is,  who  have  enough  of 
wholesome  food  to  secure  the  greatest  economy  of  consump- 
tion. "  Many  a  French  factory  hand,"  writes  Lord  Brabazon, 
"  never  has  any  thing  better  for  his  breakfast  than  a  large 
slice  of  common  sour  bread,  rubbed  over  with  an  onion,  so  as 
to  give  it  a  flavor."  "Meat,"  says  a  careful  observer,  "is 
rarely  tasted  by  the  working  classes  in  Holland.  It  forms  no 
part  of  the  bill  of  fare,  either  for  the  man  or  his  family."  Of 
the  laborers  of  Belgium,  an  official  report  states  :  "Very  many 
have  for  their  entire  subsistence  but  potatoes,  with  a  little 
grease,  brown  or  black  bread,  often  bad  ;  and  for  their  drink 
a  tincture  of  chicory."  Even  through  large  portions  of  happy 
England,  the  fabled  land  of  the  beef -eater,  there  is  a  mass  of 
unimpeachable  testimony  to  show  that  the  working  classes 
are  able  to  obtain  less  nourishment  by  far  than  is  necessary 
to  the  highest  efficiency  of  their  labor.  "  In  the  west  of 
England,"  wrote  Prof.  Fawcett,  in  1864,  "it  is  impossible  for 
an  agricultural  laborer  to  eat  meat  more  than  once  a  week." 
Of  the  peasantry  of  Devonshire,  Canon  Girdlestone  wrote  : 
"  The  laborer  breakfasts  on  tea-kettle  broth — hot  water 
poured  on  bread  and  flavored  with  onions — dines  on  bread 
and  hard  cheese,  at  2d.  a  pound,  with  cider  very  washy  and 
sour  ;  and  sups  on  potatoes  or  cabbage,  greased  with  a  tiny 
bit  of  fat  bacon.  He  seldom  more  than  sees  or  smells  butch- 
er's meat." 

Now,  as  to  the  want  of  true  economy  in  thus  reducing  the  con- 
sumption of  food  among  the  working  classes,  there  can  not 
be  a  moment's  question.  The  case  may  perhaps  be  best  put 
by  saying  that  if  cattle  were  not  kept  better  nourished  than 
are  the  majority  of  laborers  in  the  world,  it  would  not  "  pay  " 
to  have  cattle  at  all.  It  would  be  better  to  do  without  them 
entirely.  Barely  to  keep  them  alive  would  require  a  large 
expenditure  of  food,  and  to  give  them,  in  addition  to  this, 
only  enough  to  secure  a  low  grade  of  muscular  strength  and 
activity,  would  not  make  them  worth  their  keep. 

69.  Influence  of  Sanitary  Conditions  on  the  Efficiency  of 
Labor — A  third  reason  for  the  higher  industrial  efficiency  of 
the  laborers  of  one  class  or  nation  than  of  another,  is  found  in 


50  POLITICAL  ECONOMY. 

different  sanitary  conditions,  especially  those  which  concern 
the  quality  of  the  air.  The  food  which  is  taken  into  the  ani- 
mal system  is  converted  into  blood  which  is  kept  in  a  state  of 
purity  by  being  oxydized  in  the  lungs,  through  the  process 
of  breathing.  In  this  process,  the  foul  and  stupefying  ele- 
ment, carbon,  is  thrown  off  into  the  atmosphere,  and  the  life- 
giving  element,  oxygen,  is  taken  into  the  system.  That  this 
may  be  done,  there  should  be,  in  all  inclosed  habitations,  a 
sufficiency  of  space  to  each  person  and  a  free  access  of  fresh 
air.  Human  beings  confined  in  small,  un ventilated  rooms  in- 
evitably lose  vigor  ;  the  process  of  the  oxidization  of  the  blood 
being  checked,  the  process  of  making  blood,  through  the 
digestion  and  assimilation  of  the  food  taken  into  the  stomach, 
is  checked.  With  foul  air,  therefore,  a  smaller  amount  of 
muscular  force  is  generated  from  the  same  amount  of  food. 
Not  only  so,  but  the  food  taken  into  the  system  may  become 
an  actual  obstruction  and  cause  of  disease,  through  the  failure 
of  digestion  and  assimilation.  Moreover,  in  close  rooms, 
unventilated  and  uncleaned,  the  germs  of  certain  diseases, 
known  as  filth-diseases,  viz.,  typhus  and  typhoid  fevers,  scar- 
let fever,  diphtheria  and  others,  are  preserved  and  readily 
communicated,  to  the  impairment  of  health  and  the  destruction 
of  life. 

70.  The  cause  here  adduced  is  not  of  slight  importance  in 
accounting  for  the  differences  in  the  labor  power  of  different 
communities  and  nations  of  men. 

As  the  people  of  the  United  States  are  the  best  nourished, 
so  they  are,  by  a  long  interval,  the  best  sheltered  people  in 
the  world.  It  is  impossible  for  an  American  who  has  not 
traveled  widely,  to  form  an  adequate  conception  of  the  man- 
ner in  which  the  laborers  of  other  countries  are  housed.  "  Hov- 
els, cellars,  mere  dark  dens,"  wrote  Mr.  Inglis  of  the  city 
homes  of  Ireland,  in  1834,  "damp,  filthy,  stagnant,  unwhole- 
some places." 

In  1861,  one-third  of  the  population  of  Scotland  lived  in 
houses  of  one  room  only  ;  another  third  in  houses  of  two 
rooms.  In  England  the  character  of  the  country  cottages  and 
of  the  dwellings  of  the  poorer  classes  in  the  cities  is  even 


THE    LABORER'S    LODGING.  51 

worse  than  in  Scotland.    Cases  are  not  infrequent  where  fam- 
ilies of  7  to  13  members  occupy  a  single  bedroom. 

Of  the  cottages  of  Devonshire,  Canon  Girdlestone  says  : 
"  They  are,  as  a  rule,  not  fit  to  house  pigs  in."  The  cottages 
of  the  County  of  Durham  were  thus  described  by  the  Poor 
Law  Commissioners  of  1842.  "The  average  size  of  these 
sheds  is  about  24  by  16  feet.  They  are  dark  and  unwhole- 
some ;  the  windows  do  not  open,  and  many  of  them  are  not 
larger  than  20  feet  by  16  ;  and  into  this  space  are  crowded 
eight,  ten,  or  even  twelve  persons." 

71.  If  this  is  the  way  Englishmen  have  to  live  in  the  coun- 
try, we  might  expect  to  hear  worse  things  of  the  towns,  where 
land  is  sometimes  worth  as  many  silver  crowns  as  would  cover  its 
surface.    Some  years  ago  Mr.  Edwin  Chadwick  declared  that 
more  filth,  worse  physical  suffering  and  mental  disorder  than 
John  Howard  described  in  his  account  of  the  prisons  of  his  day, 
were  to  be  found  among  the  cellar  populations  of  the  working 
people  of  Liverpool,  Manchester,  or  Leeds,  and  in  large  por- 
tions of  the  Metropolis.     Much  has  of  late  been  done,  both 
by  private  philanthropic  effort  and  under  the  authority  of  law, 
to  cure  the  evils  described  ;  yet  still  much  that  is  hideous 
remains. 

It  is  in  such  homes  that  the  greater  part  of  the  present 
laborers  of  the  world  were  born  and  reared.  And  it  is  in 
homes  like  these,  that,  in  their  estate  as  laborers,  they  have  to 
live,  to  eat,  to  rest  and  to  sleep  after  the  exhausting  toil  of 
the  day.  It  is  not  to  be  wondered  at  that  children  grow  up 
puny  and  deformed  ;  that  scrofula  and  rheumatism  become 
deeply  seated  in  the  constitution  ;  that  the  blood  grows  foul 
and  the  pulse  feeble  ;  that  the  efficiency  of  the  laborer  falls  to 
a  low  point,  while  his  power  to  labor  at  all  becomes  liable  to 
be  prematurely  terminated. 

72.  The  Laborer's  Intelligence. — A  fourth  reason  for  the 
superior  efficiency  of  the  laborers  of  one  class  or  nation  over 
those  of  another,  is  found  in  their  higher  intelligence.     Intel- 
ligence is  a  powerful  factor  in  industrial   efficiency.     I  speak 
not  now  of  technical  knowledge,  but  of  clearness  of  mind, 
quickness  of  apprehension,  strength  of  memory,  and  the  power 


52  POLITICAL  ECONOMY. 

of  consecutive  thought,  in  no  more  than  the  degree  in  which 
these  may  fairly  be  expected  to  be  found  in  a  nation  where 
popular  education  has  existed  for  generations  ;  in  the  degree, 
for  instance,  in  which  they  are  found  in  New  England,  in 
Saxony,  in  parts  of  Scotland. 

The  intelligent  is  more  useful  than  the  unintelligent 
laborer : 

(a)  Because  he  requires  a  far  shorter  apprenticeship.  He 
can  learn  his  trade  in  a  half,  a  third,  or  a  quarter  the  time 
which  the  other  requires,  (b)  Because  he  can  do  his  work 
with  little  or  no  superintendence.  He  is  able  to  carry  instruc- 
tions in  his  mind,  and  to  apply  them  with  discretion  to  the 
varying  conditions  of  his  work,  (c)  Because  he  is  less  waste- 
ful of  materials.  In  some  branches  of  manufacture  the  value 
of  the  materials  used  is  equal  to  the  amount  paid  in  wages. 
In  others  it  is  twice,  thrice,  and  even  ten  times  as  much.  A 
very  little  difference  in  the  degree  of  thoughtfulness,  fore- 
sight and  regard  for  instructions,  on  the  part  of  the  laborer, 
may  make  a  great  difference  in  the  net  product. 

73.  (d)  Because  he  readily  learns  to  use  machinery,  how- 
ever delicate  or  intricate.      The  extent    to    which  labor  is 
saved  and  power  increased  by  the  use  of  machinery  hardly 
needs  illustration  here.     It  is  only  the  intelligent  workman 
who  can  freely  avail  himself  of  this  great  help.     Brains  are 
not  alone  required  for  the  invention  of  machines  ;  they  are 
wanted  for  their  adjustment,  their  ordinary  use,  and  their 
occasional  repair.     He  who  is  to  use  a  machine  need  not  be 
the  same  man  as  he  who  made  it ;  but,  to  a  great  extent,  he 
should  be  the  same  kind  of  man. 

74.  Race  Characteristics  Regarding  Machinery.— The 
capability  of  dealing  with  costly  and  delicate  machines  varies 
greatly  between  different  races  and  nations  of  men.    Notwith- 
standing the  prodigious  increase  in  the  power  of  producing 
cotton  goods,  through  the  inventions  of  Watts,  Arkwright, 
and  Sitgreaves,  vast  quantities  of  cotton  are   still    spun    or 
woven  by  hand.      In  some  of  the  countries  of  Europe,  as 
Turkey  and  Greece,  the  ordinary  "  mechanical  powers,"  the 
screw,  the  lever,  the  inclined  plane,  etc.,  are  used  but  little, 


USE    OF   MACHINERY.  53. 

or  not  at  all,  the  lifting  or  pulling  being  done  by  direct  phys- 
ical force,  at,  of  course,  the  expenditure  of  a  vast  amount  of 
animal  strength.  Even  in  highly  civilized  nations  the  appli- 
cation of  agricultural  machinery  is  limited  by  the  inability  of 
the  peasantry  to  use  it.  The  Judges  of  the  World's  Fair  of 
1852  reported  that  there  was  probably  as  much  sound,  practi- 
cal labor-saving  invention  and  machinery  unused,  at  that 
time,  as  was  used  ;  and  that  it  was  so  far  unused,  "  solely  in 
consequence  of  the  ignorance  and  incompetence  of  the  work- 
people." 

75.  Machinery  in  the  United  States.— The  United  States 
is   the   only  country  in   the   world,   excepting   some   of   the 
English  colonies,  in  which  it  can  be  safely  assumed  of  the 
average  laborer  that,  after  a  reasonable  period  of  experiment 
and  trial,  he  will  be  able  to  use  delicate  and  costly  machinery 
to  the  advantage  of  his  employer.*     In  all  other  countries, 
even  the  most  civilized,  it  is  only  picked  laborers  who  can  use 
intricate  machinery  without  doing  more  damage  than  their 
labor  is  worth. 

76.  Cheerfulness   and   Hopefulness  in   Labor. — A  fifth 
reason  for  the  higher  efficiency  of  the  laborers  of  one  class  or 
nation  than  of  another,  is  found  in  greater  cheerfulness  and 
hopefulness,  growing  out  of  higher  self-respect   and   social 
ambition,  and  a  more  direct  and  certain  interest  in  the  product 
cf  industry. 

*  A  remarkable  illustration  of  the  strong  natural  aptitude  of  the 
American  for  the  use  of  machinery,  has  come  to  my  notice  during  the 
present  year,  1887.  A  boot  and  shoe  manufacturer,  employing  eleven 
hundred  hands,  had  occasion,  during  a  great  and  long-protracted  strike, 
to  replace  considerably  more  than  half  of  the  old  operatives  by  new 
hands.  This  branch  of  industry  is  well  known  for  the  vast  variety  of 
highly  intricate  and  delicate  machinery  which  it  uses.  Yet  at  the  end  of 
five  months,  during  which  this  substitution  had  been  carried  through  to- 
completion,  the  machines  in  this  factory  were  found,  on  careful  inspec- 
tion, to  be  in  absolutely  as  good  condition,  as  at  the  beginning  of  the 
strike. 

Had  an  English  manufacturer  carried  through  such  a  replacement  of 
old  by  new  hands,  his  machinery  at  the  end  of  that  time  would  have 
been  worth  just  what  it  would  have  sold  for,  by  the  pound,  as  old  iron. 


54  POLITICAL  ECONOMY. 

The  first  three  causes  which  have  been  adduced  are  purely 
physical,  affecting  the  laborer's  muscular  force  and  capability 
of  endurance.  The  fourth  cause  adduced,  viz.  :  the  laborer's 
general  intelligence,  determines  his  intellectual  qualification 
for  his  work,  his  ability  to  direct  his  bodily  powers,  such  as 
they  are,  to  the  production  of  wealth,  with  the  maximum  of 
effect  and  the  minimum  of  waste.  The  cause  now  adduced  is 
moral,  affecting  the  will. 

The  importance  of  this  cause  is  most  conspicuously  seen  in 
the  wastefulness  and  inefficiency  of  slave  labor.  Always  and 
everywhere,  that  labor  has  been  ,found  to  be  vastly  inferior  to 
the  labor  of  freemen.  Even  the  stimulus  of  the  lash  fails  to 
command  the  faculties  which  instantly  spring  into  activity 
under  the  inspiration  of  an  ample  reward.  Fear  is  far  less 
potent  than  hope  in  evoking  the  energies  of  mind  or  body  ; 
while  efforts  made  under  the  influence  of  the  former  passion 
are  far  more  exhausting  than  those  made  under  the  influence 
of  the  latter. 

77.  Nearness  and  Directness  of  the  Reward.— Even 
among  free  laborers,  the  degree  in  which  the  physical  and 
intellectual  powers  may  be  engaged  in  the  production  of 
wealth  dt  pends  greatly  on  the  directness  and  certainty  of  the 
reward.  This  is  proved  by  the  difference  everywhere  observed 
between  the  exertions  of  wage  laborers  and  those  of  men 
working  on  their  own  account.  The  wage  laborer  necessarily 
becomes,  in  a  great  degree,  a  time  server,  an  eye  pleaser.  He 
saves  himself  as  much  as  he  can  ;  he  counts  his  hours  ;  he 
measures  the  work  he  does.  But  more  than  this,  a  laborer 
not  merely  will  not,  he  can  not,  the  laws  of  human  nature 
remaining  the  same,  work  as  hard  for  another  as  he  would  if 
working  as  his  own  man. 

On  the  other  hand,  he  who  is  working  for  himself  keeps  no 
grudging  account  of  his  time  or  exertion.  If  the  proprietor 
of  land,  he  knows  that  every  stroke  of  his  arm  is  creating 
wealth  which  he  and  his  children  are  to  enjoy  ;  that  every 
straw  saved  is  his  own.  He  watches  against  waste  with 
unfailing  eagerness.  His  vines,  his  plants,  his  animals,  his 
fences,  his  buildings,  are  borne  upon  his  mind  ;  and  no  care 


HOPEFULNESS  IN  LABOR.  55 

or  pains  are  withheld  to  guard  them  against  the  almost  infinite 
forms  of  injury  which  beset  these  species  of  wealth.  He  is 
early  afield,  for  the  day  is  not  long  enough  for  all  he  wishes 
to  do  ;  and  when  night  falls,  he  still  lingers,  tying  up  his 
vines,  tinkering  his  sheds,  tending  his  cattle,  bringing  home 
the  harvest. 

Even  beyond  the  mere  love  of  wealth,  of  what  can  be 
bought  and  sold,  enters  the  love  of  his  land,  which  is  his  own, 
which  was  his  father's,  which  shall  be  his  son's  after  him  ; 
and  he  works  upon  it,  sparing  himself  little  more  than  does 
the  mother  caring  for  her  child.  "  Give  a  man  the  secure 
possession  of  a  bleak  rock,"  said  Arthur  Young,  "  and  he  will 
turn  it  into  a  garden."  The  vineyards  of  the  Rhine,  built  up, 
in  many  cases,  of  earth  brought  in  baskets  up  the  sides  of  the 
mountains,  are  speaking  witnesses  to  the  truth  of  this  saying  ; 
while  many  of  the  richest  fields  of  Holland  and  Belgium, 
once  drifting  wastes,  illustrate  that  other  saying  of  the 
eminent  traveler  :  "  The  magic  of  property  turns  sand  into 
gold." 

78.  Influence  of  Bad  Laws  in  Producing  Idleness. — 
Doubtless  much  of  the  indolence  we  have  been  accustomed  to 
regard  as  constitutional  with  certain  races  and  nations,  and  as 
indicating  lack  of  physical  endurance  or  feebleness  of  will,  is 
due  simply  to  the  absence  of  incentive,  resulting  from  unjust 
laws  or  bad  social  institutions.  It  would  be  enough  to  make  one 
laugh  to  hear  the  Scotch  spoken  of  as  lazy.  The  energy  and 
perseverance  of  that  people  have  been  illustrated  in  every 
quarter  of  the  globe.  Yet,  three  or  four  generations  ago,  the 
Scottish  people,  says  Prof.  Hearn,  "  were  conspicuous  for  their 
incorrigible  indolence."  The  ample  explanation  was  found  in 
the  almost  universal  system  of  short  leases  or  of  tenancy  at 
will.  A  single  wise  action  of  legislation  ciired  this  defect  ; 
and  with  it  disappeared  the  laziness  of  the  Scotchman. 

Not  half  so  long  ago  as  that,  the  Irish  were  a  proverb  over 
Europe,  for  indolence  and  shiftlessness.  Arthur  Young 
describes  them  as  "  lazy  to  an  excess  at  work,"  but  "  spirit- 
edly active  at  play."  The  Irishman  of  that  day  was  spir- 
itedly active  at  play,  because  the  fun  was  sure  to  be  all  his- 


56  POLn^ICAL  ECONOMY. 

•own.  There  were  no  laws  or  institutions  which  robbed  him 
of  his  sport.  He  was  lazy  to  an  excess  at  work,  because  invid- 
ious laws,  social  proscription  and  the  customs  relating  to  land 
kept  from  him  a  large  part  of  the  natural  fruits  of  his  labor. 
Every  country  of  the  globe  has  witnessed,  since  1850,  the 
indomitable  pluck  and  energy  of  the  Irish  at  work  under 
equal  laws  and  with  "  a  fair  chance." 

79.  The  Varying  Efficiency  of  Labor. — I   have   indicated 
the  chief  causes  which  influence  the  efficiency  of  the  individ- 
ual laborer  in  the  production  of  wealth.     The  joint  effect  of 
all  these  is  very  considerable.     Industrial  operations  conducted 
upon  a  large  scale  have  shown  that  wide  differences  exist  in 
the  working  power  of  men  of  different  nations.     In  comparing 
the  cost  of  constructing  railroads  in  India  and  in  England,  for 
instance,  it  was  found  that,  though  the  Indian  laborer  received 
but  4^  to  6d.  a  day,  and  the  English  laborer,  3s.  to  3s.6d.,  the 
sub-contracts  in  the  two  countries  were  let  at  the  same  prices. 
The  English  cotton  spinner  is  paid  as  many  shillings  as  the 
East  India  spinner  gets  pence  ;  yet  the  cotton  cloth  of  En- 
gland undersells  that  of  India  in  Indian  markets.     As  between 
England  and  Russia,  it  is  found  that  a  weaver  in  the  former 
country  tends  from  two  to   three  times  as  many  looms  as  in 
the  latter,  the  English  looms,  moving,  moreover,  at  a  higher 
rate  of  speed. 

As  between  England  and  France,  the  superiority  of  the 
labor  of  the  former  country  has  been  repeatedly  shown  in 
great  competitive  experiments.  Mr.  Brassey  states  that,  in 
the  construction  of  certain  French  railways,  it  was  found  that 
the  working  capacity  of  the  Englishman  was  to  that  of  the 
Frenchman  as  five  to  three.  Superior  as  are  the  workmen  of 
England  to  those  of  other  countries  of  Europe,  they  are,  in 
turn,  surpassed,  on  the  average,  by  those  of  the  United  States, 
in  the  respects  of  strength,  intelligent  direction  of  force,  and 
ability  to  use  machinery  to  advantage. 

80.  The  Division  of  Labor. — The    second    factor    of    the 
labor  power  of  a  community  is  that  which  is  commonly  called 
by  the  unsatisfactory  term,  division  of  labor,  embracing,  as 
was  said  on  an  earlier  page,  the  joint  action  of  men  in  pro- 


THE  DIVISION  OF  LABOR.  57 

duction,  the  differentiation  of  productive  processes,  the  spec- 
ialization of  trades,  and  the  organization  of  industrial  forces. 
The  term,  organization  of  labor,  is  perhaps  the  best  single 
term  that  can  be  used  to  cover  all  this  ground. 

In  primitive  society  the  division  of  labor  does  not  exist,  or 
is  found  only  in  a  rudimentary  state.  Each  able-bodied  man 
does  all  which  any  one  does.  Each  builds  his  wigwam  or  hut, 
shapes  his  bows  and  arrows  ;  cares  for  his  horses,  if  he  have 
any,  and  hunts  or  fishes  in  his  own  right  and  name.  Yet, 
even  here,  the  division  of  labor  as  between  the  sexes  is  in 
some  degree  carried  out.  The  women  make  the  nets,  weave 
the  blankets  and  cook  the  food,  as  duties  suitable  to  their 
powers. 

Soon,  however,  emerges  a  division  of  labor  founded  on  dif- 
ferences of  capability  less  fundamental  than  those  of  sex. 
The  smith  appears,  working  at  first  alike  in  iron,  wood  and 
stone.  He  does  all  the  work  of  this  class  which  the  commun- 
ity requires  ;  and,  in  return,  receives  flesh  and  fish  from  those 
whose  spears  and  hooks  are  sharpened  and  pointed  at  his  forge. 
As  the  amount  of  this  class  of  work  to  be  done  increases,  three 
smiths,  instead  of  one,  come  to  be  employed  ;  one  working  in 
iron,  one  in  wood,  and  one  in  stone,  known  respectively  as  the 
blacksmith,  the  carpenter  and  the  mason.  As  the  wants  felt 
by  the  community  are  multiplied,  as  modes  and  fashions 
appear,  new  classes  of  artisans  come  into  existence,  each  work- 
ing on  some  one  class  of  substances,  or  making  some  one  class 
of  articles.  The  cabinet-maker  follows  the  carpenter  ;  the 
jeweler  the  blacksmith  ;  the  sculptor,  in  time,  the  mason. 
Finally,  the  operations  of  each  trade  come  to  be  distributed 
among  several  distinct  classes  of  laborers. 

81.  How  the  Division  of  Labor  Increases  Production. — 
It  is  difficult  adequately  to  appreciate  the  increase  of  pro- 
duction which  results  from  the  application  of  this  principle. 

(a)  It  shortens  apprenticeship.  If  each  man  had  to  learn 
the  whole  of  a  trade,  much  more  to  learn  several  trades,  he 
would  hare  to  take  a  great  deal  of  time  and  spoil  a  great  deal 
of  material  and  many  tools  in  doing  so.  But  when  each 
workman  is  required  to  learn  but  a  single  trade,  and,  within 


58  POLITICAL  ECONOMY. 

that  trade,  to  practice  only  one  simple  operation,  the  period 
of  instruction  becomes  very  brief.  The  end  of  a  few  months 
finds  him  intelligent,  if  not  expert,  in  his  business. 

(b)  It  develops  dexterity.  Long  after  the  workman  has 
so  far  mastered  his  trade  as  to  be  able  to  perform  its  opera- 
tions without  mistake,  he  continues  to  gain  in  productive 
power,  through  the  incessant  repetition  of  his  task.  The 
sense  especially  concerned  in  his  work,  be  it  sight,  or  touch, 
or  hearing,  becomes  preternaturally  acute.  The  muscles 
brought  especially  into  play  gain  in  size  and  activity.  Even 
certain  organs  may  become  involved  in  the  operations  of  the 
trade,  and  undergo  changes  which,  whether  favorable  to  the 
general  health  and  symmetry,  or  not,  are  of  a  nature  to  facili- 
tate the  customary  work.  Any  one  who  watches  a  cashier 
counting  notes,  a  telegraph  operator  sending  messages,  can 
see  how  wonderfully  practice  must  come  into  industry,  to 
make  perfect  the  wrorkman. 

82.  (c)  It  obviates  the  loss  of  time  and  the  distraction  of 
thought  which  would  be  involved  in  passing  from  place  to 
place,  and  in  laying  down  the  tools  of  one  trade  to  take  up 
those  of  another.  In  agriculture,  where  the  division  of  labor 
can  be  carried  but  a  little  way,  we  know  a  great  deal  of  time 
is  thus  lost. 

(d)  It   facilitates  invention  and  leads  to  the  discoveiy  of 
improved   processes   and   new  materials.     Practiced  thus   in 
detail,  every  art  or  trade  is  studied  in  detail,  and,  one  by  one, 
here   a  little    and  there  a  little,  its  mechanical  possibilities 
come  to  be  seen  and  realized.     Some  of  the  most  conspicuous 
discoveries  in   the   history   of   industry  have,  indeed,    come 

-  through  scientific  research,  or  by  casual  suggestion  ;  but  an 
infinite  multitude  of  inventions  and  improvements  in  pro- 
cesses, accomplishing,  in  their  aggregate  effect,  an  incredible 
gain  to  productive  power,  have  been  the  result  of  the  minute 
study  of  the  operations  of  industry,  in  detail,  by  men  each  of 
whom  was  dealing  with  a  single  class  of  substances,  perform- 
ing a  single  operation,  with  the  aid,  perhaps,  of  a  single  tool. 

(e)  It  allows  women  and  children,  as  well  as  men  who  are 
suffering  from  some  partial  disability,  to  find  places  in  the 


FREE    TRADE.  59 

industrial  order  where  they  can  labor  to  advantage  ;  while 
among  men  of  full  powers  it  assigns  to  each  that  work  which 
is  best  suited  to  his  individual  capacity. 

83.  The  Territorial  Division  of  Labor.— This  is  a  phrase 
devised  by  an  English  economist  during  the  great  popular 
agitation  which  preceded  the  repeal  of  the  Corn  Laws,*  to  ex- 
p/ess  the  carrying  out  of  the  principle  of  the  division  of  labor, 
which  we  have  thus  far  contemplated  in  operation  among  the 
individuals  of  a  community,  to  communities  and  to  nations.  The 
phrase  intimates  that  the  vast  industrial   advantages  which 
attend  the  application  of  that  principle  within  the  hamlet  and 
throughout  the  country,  will  accompany  that  principle  in  its 
extension  over  the  whole  field  of  the  world's  production. 

This  is  the  main,  indeed,  we  may  say  the  sole,  economic 
argument  in  favor  of  Free  Trade,  as  opposed  to  what  is  called 
Protection.  The  claim  to  freedom  of  trade  as  a  "natural 
right "  is  not  one  of  which  the  economist  can  properly  take 
account.  On  the  other  hand,  the  arguments  of  the  protec- 
tionist, based  on  the  political  importance  of  the  industrial  self- 
sufficiency  of  the  nation,  and  on  the  alleged  social  and  intel- 
lectual advantages  resulting  from  a  diversification  of  national 
industry,  are  equally  out  of  his  view. 

Inasmuch  as  the  protectionist  plea  for  limiting  the  terri- 
torial extension  of  the  principle  of  the  division  of  labor, 
includes  a  claim  that  the  creation  by  law  of  industrial  entities 
corresponding  to  existing  political  entities,  has  an  influence, 
not  only  upon  the  production,  but  also  upon  the  distribution 
of  wealth  (which  department  of  our  inquiry  we  have  not  yet 
reached),  and  as  the  whole  question  of  protection  or  free- 
trade  is  bound  up  with  political  and  sociological  considera- 
tions, it  has  seemed  best  to  postpone  the  remarks  we  have  to 
make  upon  that  question  to  Part  VI,  "  Some  Applications  of 
Economic  Principles." 

84.  The  Organization  of  Industry.— But  the  advantages 

*  Imposing  high  duties  on  foreign  grain  imported  into  England.  These 
laws  were  repealed  by  Parliament  in  1846,  under  the  leadership  of  Sir 
Robert  Peel.  The  study  of  the  history  of  the  Repeal  movement  affords 
an  admirable  economic  exercise. 


60  POLITICAL  ECONOMY. 

derived  immediately  from  the  division  of  labor,  are  but  a  part 
of  the  total  advantage  which  is  attributable  to  what  we  have 
termed  the  organization  of  industry.  In  addition  to  those 
already  indicated,  we  find,  under  the  larger  title,  a  vast  gain 
of  productive  power  resulting  from  the  introduction  of  the 
principle  of  competition,  the  creation  of  esprit  de  corps,  and 
the  direction  given  to  the  mass  of  laborers  by  the  few  clear, 
strong  spirits,  which,  under  such  a  system,  dominate  the 
industrial  operations  of  the  community. 

(a)  Competition  can  only  be  introduced  as  an   active  force 
where   the   opportunity   for   exact  and  easy  comparison   of 
results  exists.     Where  each  one  of  a  number  of  persons  is  per- 
forming every  day  a  large  number  of  miscellaneous  duties, 
now  a  little  of  this,  then  a  little  of  that,  it  is  difficult  or  impos- 
sible to  measure  the  achievements  of  the  several  persons  so 
employed,  bring  them  to  a  scale,  and  assign  credit  or  blame. 
But  when  those  duties  are  so  distributed  that  each  person  is 
charged  with  the  performance  of  a  certain,  definite  task,  com- 
parison becomes  possible. 

(b)  The  creation  of  esprit  de  corps  within  trades  and  profes- 
sions becomes  a  tremendous  force  in  industry.     Competition 
operates  upon  the  laborer,  through  the  employer's  desire  to 
get  the  most  out  of  each  workman,  and  through  the  laborer's 
desire  to  obtain  and  retain  employment.     The  principle  now 
invoked  operates  on  the  laborer,  perhaps  not  less  powerfully, 
through  the  public  sentiment  of  the  craft,  establishing  stand- 
ards of   w  vkmanship  and  laws  of  conduct  which  tend  to  lift 
each  workman  to  the  level  of  the  best. 

85.  (c)  Mastership  in  Industry.— But  the  most  important  of 
the  sources  of  gain  in  productive  power,  now  under  consider- 
ation, is  found  in  that  mastership  of  industry  which  is  created 
by  the  division  of  labor.  That  division  can  not  proceed  to  its 
natural  limits  without  giving  rise  to  the  subordination  of  the 
mass  of  the  laboring  population  to  a  select  and  comparatively 
small  body  of  employers,  who  assume  the  responsibilities  and 
direct  the  agencies  of  production. 

Whether  this  gain  is  accomplished  at  a  certain  social  and 
political  cost,  is  a  question  the  economist  is  not  called  upon  to 


CAPITAL.  6l 

discuss.  That  question  belongs  to  the  social  philosopher  or 
the  statesman.  The  economist,  as  such,  is  guilty  of  an  unwar- 
rantable presumption  if  he  undertake  to  measure  the  quantity 
of  economic  advantage  which  would  offset  the  smallest  ethical 
or  physiological  injury.  He  does  all  that  he  is  called  upon  to 
do,  all  that  he  can  undertake  to  do  without  impairing  the  sci- 
entific value  of  his  results,  when  he  traces  causes  to  their 
effects  within  the  field  of  economics  alone. 

Looking  at  the  matter  in  its  purely  economic  aspect,  it  is 
clear  that  the  gain  in  question  is  not  realized  without  an  initial 
loss,  inasmuch  as  the  laborer,  under  the  wages  system,  neces- 
sarily has  a  less  direct  and  certain  interest  in  the  product  of 
his  industry,  than  the  man  who  labors  on  his  own  account. 
But  this  loss  is  compensated,  many  times  over,  by  the  gain  to 
production  which  results  from  the  impulse  and  direction  given 
to  industry  by  the  thought-power  and  will-power  of  the  ablest 
minds  in  the  community. 


CHAPTER  III. 

CAPITAL  :    ITS    ORIGIN    AND    OFFICE. 

86.  THE  third  great  agent  in  the  production  of  wealth  is 
Capital.  The  capital  of  a  community  is  that  part  of  its  wealth 
(excluding  land  and  natural  agents,  considered  as  unim- 
proved *  )  which  is  devoted  to  the  production  of  wealth. 

Some  writers,  indeed,  insist  that  the  climate  of  a  country, 
so  far  as  it  especially  favors  production,  is  to  be  reckoned  as 
a  part  of  the  capital  of  that  country.  I  prefer  to  say  that 
the  beneficent  distribution  of  heat  and  moisture,  by  the  gratui- 
tous action  of  nature,  is  a  favorable  condition  of  production, 
but  is  not  capital.  A  sound  system  of  jurisprudence,  which 
secures  the  impartial  administration  of  justice  ;  a  sound 
organization  of  the  political  body,  which  maintains  peace 

*  The  reason  for  this  exception  will  appear  when  we  come  to  treat  of 
the  rout  and  price  of  land. 


62  POLITICAL  ECONOMY. 

and  order,  are  most  favorable  conditions  of  production  ; 
they  lead  to  a  vast  creation  of  values  ;  they  are  better  than 
much  capital  to  the  people  enjoying  them  ;  but  they  are  not 
capital. 

87.  The  Origin  of  Capital. — The  origin  of  capital  is  so 
familiar  that  it  need  not  be  dwelt  upon  at  length.  A  simple 
illustration  may  suffice.  Let  us  take  the  case  of  a  tribe  dwell- 
ing along  the  shore,  and  subsisting  upon  fish  caught  from  the 
rocks  which  jut  into  the  sea.  Summer  and  winter  together, 
good  seasons  and  bad,  they  derive  from  this  source  a  scanty 
and  precarious  subsistence.  When  the  fish  are  plentiful,  the 
people  live  freely,  even  gluttonously.  When  their  luck  is 
bad,  they  submit  to  privations  which  involve  suffering,  some- 
times famine. 

Now  let  us  suppose  that  one  of  these  fishermen,  moved  by 
a  strong  desire  to  better  his  condition,  undertakes  to  lay  by  a 
store  of  fish.  Living  as  closely  as  will  consist  with  health 
and  strength,  he  denies  himself  all  superfluity,  even  at  the 
height  of  the  season,  and  by  little  and  little  accumulates  in 
his  hut  a  considerable  quantity  of  dried  food.  This  is 
wealth.  Whether  it  shall  become  capital  or  not  depends 
upon  the  use  which  is  to  be  made  of  it.*  If  destined  to  be 
merely  a  reserve  against  hard  times,  it  remains  wealth,  but 
does  not  become  capital. 

But  our  fisherman,  in  laying  by  his  store  of  fish,  has  higher 
designs  than  to  equalize  the  food  consumption  of  the  year. 
As  the  dull  season  approaches,  he  takes  all  the  food  he  can 
carry  and  goes  into  the  hills,  where  he  finds  trees  whose  bark 
can  be  detached  by  sharp  stones.  Again  and  again  he  returns 
to  his  work  in  the  hills,  while  his  neighbors  are  painfully 
striving  to  keep  themselves  alive.  At  the  end  of  the  dull 
season  he  brings  down  to  the  water  a  canoe,  so  light  that  it 
can  be  borne  upon  his  shoulders,  so  buoyant  that  he  can  pad- 
dle in  it  out  to  the  "  banks,"  which  lie  two  or  three  miles  from 
shore,  where  in  one  day  he  can  get  as  many  fish  as  he  could 
catch  from  off  the  rocks  in  a  week. 

*  "  All  labor  expended  for  a  distant  end  falls  under  the  head  of  capi- 
tal."— ROSCHER. 


CAPITAL.  63 

88.  The  Professional  Boat-Builder. — The  canoe  is  capital ; 
the  fisherman  is  a  capitalist.     He  can  now  take  his  choice  of 
three  things.     He  may  go  out  in  his  canoe  and  bring  home 
supplies  of  fish  which  will  allow  him  to  marry  and  rear  a 
family  in  comfort,  and  with  his   surplus   hire  some  of   his 
neighbors  to  build  him  a  hut,  their  women  to  weave  him 
blankets,   and  their  children  to  .bring  water  from  the  spring 
and  wait   upon   his   family.     Secondly,  he   may  let  out  the 
canoe  to  some  one  who  will  be  glad  to  get  the  use  of  it  on 
payment  of  all  the  fish  which  one  family  could  fairly  con- 
sume, and  himself  stay  at  home  in  complete  idleness,  basking 
in  the  sun,  and  on  stormy  days  seeking  refuge  in  his  hut. 
Thirdly,  he  may  let  out  the  canoe  and  himself  turn  to  advant- 
age the  knowledge  and  experience  acquired  in  its  construction 
by  making  more  canoes. 

The  last  is  the  course  he  decides  to  take.  Again  and  again 
he  reappears  upon  the  shore,  bringing  a  new  canoe,  for  the 
use  of  which  a  score  of  his  neighbors  clamorously  compete. 
And  later  canoes,  be  it  noted,  are  made  with  a  smaller  effort 
and  sacrifice  on  the  part  of  the  builder.  He  has  become 
familiar  with  the  groves  where  the  trees  are  largest  and  the 
trunks  most  clear  of  branches.  He  has  acquired  a  knack  which 
makes  it  almost  a  pleasure  to  strip  off  the  vast  rolls  of  tough 
elastic  bark.  He  never  spoils  his  half -completed  work,  now,  by 
an  ill-directed  blow.  Moreover,  his  toil  is  reduced  to  a  mini- 
mum, for  he  has  hired  men  to  carry  his  burdens  and  do  the 
heavy  labor. 

89.  The  Increase  of  Capital. — But  soon  the  canoe-builder's 
profits  are  threatened.     Thus  far,  in  the  possession  of  excep- 
tional skill  and  knowledge,  he  has  been  a  monopolist,  and  has 
reaped  a  monopolist's  gains.     Now,  however,  stimulated  by 
the  sight  of  such  great  wealth  gathered  (that  is,  so  great  a 
command  of  other  people's  labor  acquired)  by  one  man,  others 
begin  to  enter  the  field. 

As  an  essential  condition,  each  must  save  and  accumulate 
enough  food  to  support  him  while  making  his  first  boat,  that 
is,  must  accunmlate  a  certain  amount  of  capital.  This,  how- 
ever, is  less  difficult  than  it  was  in  the  case  of  the  original 


64  POLITICAL  ECONOMY. 

builder,  first,  because  fish  have  come,  through  the  multiplica- 
tion of  boats,  to  be  much  more  easily  obtained  ;  secondly, 
because  there  are  fewer  experiments  to  make  ;  thirdly,  because 
certainty  and  nearness  of  success  will  inspire  the  labors 
of  ten  men  where  one  will  be  moved  to  great  sacrifice  and 
exertion  by  a  prospect  that  is  distant  and  doubtful.  More- 
over, some  of  the  shrewdest  of  the  assistants  of  the  old  boat- 
builder,  who  have  watched  him  at  work,  and  whom  he  has 
trusted  more  and  more  to  do  even  the  nicer  parts  of  his  task, 
begin  to  desert  him  and  to  set  up  for  themselves.  The  ivnt 
of  boats  falls  rapidly  ;  the  old  master,  who  has  become  rich 
and  self-important,  and  perhaps  a  little  lazy  with  years,  goes 
out  of  the  business. 

90.  First  Effects  of  Competition. — For  a  time,  while  the 
number  of  boats  increases  rapidly,  the  quality  suffers  deteriora- 
tion ;    two   fishermen   are  drowned  upon  the  banks  by  the 
breaking  up  of  boats  in  a  sudden  squall.      The  boat-builders 
in  fault  ai-e  condemned  by  the  general  assembly  of  the  tribe 
to  support  the  widows  and  orphan  children.      The  rage  for 
mere   cheapness   is   checked.      Boats  are  now-  tested  before 
they  are  used,  and   some  ambitious  builders  find  themselves 
driven  out  of  the  trade  by  the  failure  of  their  work. 

And  it  is  important  to  be  noted  that  the  profits  of  boat- 
building are  rapidly  reduced.  The  first  boat  built  repaid  the 
cost  of  its  construction  in  a  few  weeks.  The  boats  now 
made  only  repay  the  cost  of  their  construction  in  the  course  of 
months.  Yet,  the  men  who  make  boats  still  get  a  better 
livelihood  than  those  who  use  them  ;  while  those  who  use 
boats  get  a  better  livelihood,  even  after  paying  the  rent,  than 
those  who  still  fish  off  the  rocks. 

91.  What  "Will  They  Do  with  It? — Now  let   us   suppose 
that  the  manufacture  of  boats  has  proceeded  so  far  that  there 
is  one  serviceable  boat  for  every  four  adult  males  of  the  tribe. 
At  this  point,  one  of  two  widely  divergent  courses  may  be 
adopted,  with   very  important  results  to  the  future  of   the 
community. 

First,  the  multiplication  of  boats  goes  forward  until  each 
man  is  provided  with  a  boat  in  which  he  can  catch  enough 


NEW   ECONOMIC    WANTS.  65 

fish,  in  two  or  three  hours  a  day,  to  keep  him  and  his  family, 
summer  and  winter,  good  seasons  and  bad.  The  creation  of 
capital  has  at  least  led  to  this  result  :  it  has  put  famine  out  of 
the  question.  There  is  always  an  abundance  of  fresh  fish,  on 
the  banks,  and  of  cured  fish  even  in  the  meanest  hut.  The 
rest  of  the  time  is  spent  in  idleness  or  sport. 

Secondly,  the  manufacture  of  boats  stops  at  the  point  where 
fish  for  the  whole  tribe  can  be  provided  by  one-fourth  of  its 
members,  toiling  early  and  late  upon  the  banks.  The  remain- 
ing members,  those  who,  through  youth  or  self-indulgence, 
have  failed  to  provide  themselves  with  boats,  those  who 
through  misfortune  have  lost  their  boats  and  have  become  dis- 
couraged, those  who  by  physical  weakness  or  natural  or 
acquired  infirmity  are  least  fitted  to  undertake  the  rugged 
duty  of  the  fisherman,  and  those  who  have  been  intimidated 
by  tales  or  by  experience  of  hardships,  or  by  the  sight  of  the 
bodies  of  drowned  fishermen  rolled  ashore  after  a  storm — 
these  all  betake  themselves,  in  one  capacity  or  another,  to  the 
service  of  the  fishermen,  the  capitalist-employers  (Par.  304)  of 
the  tribe.  Only  so  many  boat-builders  remain  as  are  needed 
to  repair  and  keep  up  the  existing  stock.  The  house-builder 
now  takes  the  place  of  the  boat-builder.  No  one  is  satisfied 
to  live  in  the  sort  of  hut  which  would  once  have  been  thought 
good  enough  for  the  chief.  Menial  servants  become  numer- 
ous. The  fashioning  of  ornaments  and  trinkets  takes  up  a  vast 
amount  of  labor. 

92.  New  Economic  Desires. — Soon  a  new  want  emerges. 
A  plant  with  bright  fiowers  is  discovered  among  the  hills  and 
brought  home  as  a  curiosity.  It  is  raised,  as  a  rather  distin- 
guished thing,  in  front  of  houses  of  especial  pretension.  By 
cultivation  it  undergoes  more  or  less  change,  particularly  in 
the  development  of  large  tubers  which  are  found  to  be  highly 
palatable  and  nutritious.  The  absurd  name,  potatoes,  is  applied 
to  these  tubers.  As  affording  a  change  from  the  everlasting 
sea-food  of  the  fathers,  they  are  relished  greatly,  and  soon  a 
number  of  persons  are  breaking  up  ground  to  plant  and 
cultivate  these  tubers,  which  are  exchanged,  on  liberal  terms, 
for  fish  taken  on  the  banks. 


66  POLITICAL  ECONOMY. 

The  introduction  of  a  vegetable  diet  marks  the  beginning 
of  a  revolution  in  the  life  of  the  community.  After  this,  any 
thing  is  possible.  The  taste  for  a  diversified  diet,  once  felt, 
knows  no  limits.  Agriculture  has  begun,  involving  the  neces- 
sity of  capital  in  a  hundred  forms.  New  foods  are  followed 
by  new  fibers  ;  manufactures  spring  into  being,  and  all  the 
potentiality  of  the  modern  nation  now  resides  in  a  tribe  which 
a  generation  ago  lived  wholly  on  fish  caught  from  rocks  along 
the  shore. 

03.  The  Law  of  Capital. — It  is  not  necessary  to  trace  further 
the  increase  of  capital.  At  every  step  of  its  progress,  capital 
follows  one  law.  It  arises  solely  out  of  saving.  It  stands 
always  for  self-denial  and  abstinence.  At  the  first  beginning, 
savings  are  made  slowly  and  painfully  ;  and  the  first  items  of 
capital  have  a  power  in  exchange  (an  ability,  that  is,  to  com- 
mand the  labor  of  those  who  have  not  capital),  corresponding 
to  the  difficulty  with  which  they  are  secured.  The  bow,  the 
spear,  the  canoe,  the  spade,  much  as  they  cost,  pay  for  them- 
selves in  a  few  days.  Subsequent  increments  of  capital  are 
gained  at  a  constantly  diminishing  sacrifice,*  and  receive  a 
constantly  diminishing  remuneration,  until,  in  the  most 
advanced  countries,  buildings  are  erected  and  machines  con- 
structed which  only  pay  for  themselves  in  ten,  twelve  or  even 
twenty  years. 

At  every  stage,  we  note,  too,  that  capital  releases  labor 
power  which  was  formerly  occupied  in  providing  for  the  wants 
of  the  community  according  to  its  then  prevailing  standard  of 
living.  At  every  stage,  the  members  of  the  community  make 
their  choice,  whether  they  will  apply  the  labor  power,  thus 
released,  to  the  production  of  wealth,  in  other  branches,  or 
will  content  themselves  with  living  as  well  as  before,  upon 
easier  terms,  giving  up  the  newly  acquired  leisure  to  idleness 
or  sport. 

94.  Subsistence. — The  office  of  capital  has  been  perhaps  abun- 
dantly shown  in  the  account  given  of  its  origin.  Capital,  as 

*  Prof.  Marshall  remarks  that  the  whole  continent  of  Asia,  with  its 
thousand  millions  of  inhabitants,  has  less  power  of  saving  than  England 
has. 


THE    LAW    OF    CAPITAL.  6^ 

we  have  seen,  is  that  portion  of  wealth*  which  is  employed  in 
the  production  of  new  forms  of  wealth. 

At  first,  capital  is  limited  to  the  means  of  subsistence  for 
the  producer.  It  was  not  easy  in  the  first  stage  of  industrial 
progress,  to  lay  by  enough  of  the  game  or  the  fish  of  one  sea- 
son to  last  until  the  next.  For  want  of  such  a  store  of  food 
many  a  tribe  perished.  Many  another  was  kept  in  a  low, 
miserable  condition,  unable  to  shift  its  seat  to  more  promising 
localities,  and  continually  depleted  by  famine  and  disease. 
But  when  once  a  tribe,  by  exceptional  good  fortune,  or 
through  prudence  and  self-control,  acquired  a  reserve  sufficient 
for  a  full  year's  subsistence,  it  became  in  a  degree  master  of 
its  conditions.  It  could  shift  its  seat  to  better  hunting  or  fish- 
ing grounds.  It  could  pursue  its  avocations  systematically 
and  economically,  doing  that  which  should  be  esteemed  most 
productive  in  the  long  run,  not,  as  before,  hurriedly  and  waste- 
fully,  under  the  stress  of  immediate  want.  The  physical 
strength  of  its  members  was  kept  at  the  highest  point  by  ample 
and  regular  diet. 

An  ample  year's  subsistence  forms  the  most  important 
advance  which  a  people  ever  make  in  their  progress  towards 
industrial  prosperity.  No  subsequent  step  costs  one-half,  or 
a  tithe  as  much.  Many  peoples  never  find  themselves  able 
quite  to  accomplish  this.  The  people  of  British  India  can 
hope  for  no  more,  in  good  years,  than  to  be  carried  through 
into  the  next ;  while,  once  in  every  four  or  five  years,  a  famine 
following  a  short  crop  sweeps  away  millions  by  sheer  starva- 
tion, or  by  the  fevers  which  feed  upon  half -famished  popula- 
tions. Even  in  Ireland,  there  was  known,  half  a  century  ago, 
a  period  two  or  three  months  long,  preceding  harvest,  which 
was  called  by  the  peasantry  "  the  starving  season." 

95.  Tools. — The  next  purpose,  in  logical,  and  generally,  also,  in 
historical  order,  for  which  capital  is  accumulated,  is  the  acqui- 
sition of  tools.  I  use  the  word  here  in  its  largest  sense, 
including  all  apparatus,  utensils  and  machinery.  The  knife, 
the  bow,  the  spear,  the  canoe,  the  net,  are  the  tools  of  a  cer- 

*  Excluding  land  and  natural  agents,  considered  as  unimproved. 


68  POLITICAL  ECONOMY. 

tain  stage  of  industrial  society.  The  spade,  the  cart,  the 
plow,  the  distaff,  the  forge,  are  the  tools  of  a  later  stage. 
The  loom,  the  lathe,  the  printing  press,  the  trip-hammer,  the 
railroad  and  the  ship,  may,  with  equal  propriety,  be  called 
the  tools  of  to-day.  The  buildings  which  protect  machinery 
from  the  weather,  and  the  shops  in  which  trade  and  manufac- 
tures are  carried  on,  are,  in  this  sense,  tools. 

96.  Materials.— The  third  form  which  capital  takes  is  that 
of  Materials.     The  word,  as  here  used,  covers   all  kinds  of 
wealth  which  are  devoted  to  the  production  of  wealth  in  any 
other  way  than  as  subsistence  for  the  laborer,  or  as  tools  to- 
increase  his  power  in  production.     In  a  primitive  state,  mate- 
rials play  a  small  part.     The  bait  for  the  hook  among  the  tribe 
of  fishermen  ;  the  corn  saved  for  seed  in  a  planting  commun- 
ity, are  the  most  prominent  materials  of  early  industry.     In  a 
later  age  a  large  part  of  all  the  accumulated  wealth  of  a  com- 
munity exists  in  this  form. 

Ultimately,  indeed,  these  materials  will  be  wrought  partly 
into  tools,  partly  into  the  means  of  subsistence.  A  part,  also, 
may  come  to  be  devoted  to  purposes  of  luxury  or  display,  and, 
hence,  cease  to  be  capital  at  all.  But  at  any  given  time,  the 
capital  of  a  community  may  be  classed  under  these  three 
heads  :  Subsistence,  Tools,  Materials. 

97.  The  Three  Forms  of  Capital. — In  a  certain  sense  these 
three  may  be  resolved  into  one,  Subsistence  ;  as,  indeed,  all 
the  forms  of  subsistence  itself  may  be  resolved  into  one,  Food. 
Thus,  the  first  simple  tools  of  the  barbarous  community  may 
be  said  to  be  exactly  represented  by  the  subsistence  required 
by  the  laborers  engaged  in  making  the  tools.     The  first  mate- 
rials produced  by  the  aid  of  these  tools  may  be  said  to  be  repre- 
sented by  the  subsistence  of  the  laborers  using  the  tools,  added 
to  that  of  the  laborers  who  made  the  tools.     And  so  of  the  more 
elaborate  tools  and  the  more  various  and  costly  materials  of 
after  ages  :  all  may  be  said  to  represent  the  subsistence  of  the 
laborer  while  engaged  in  the  act  of  production. 

Likewise  all  the  forms  of  subsistence,  food,  clothing,  shelter 
and  fuel,  may,  in  theory,  be  reduced  to  one,  food.  The  clothing 
of  the  laborer,  for  example,  represents  the  food  which  he  con- 


PRODUCTIVE    CAPABILITY.  69 

sumed  while  he  was  gathering  the  fibers  of  the  wild  grasses 
and  weaving  them  into  a  blanket.  The  hut  represents  the  food, 
consumed  during  its  erection.  The  fuel  represents  the  food 
consumed  while  the  laborer  was  gathering  fagots  in  the  forest. 
98.  One  of  the  advantages  of  this  classification  is,  that  it 
directs  the  attention  to  the  part  performed  by  tools,  machinery 
and  apparatus,  in  the  production  of  wealth.  Look  into  many 
text  books  on  Political  Economy,  and  you  will  find  capital 
spoken  of  as  if  its  main,  or  even  its  sole  office,  were  to  furnish 
subsistence  to  the  laborer.  Yet  two  nations  may  be  equally 
provided  with  subsistence,  while  the  superiority  of  one  of  them 
in  the  possession  of  tools  may  give  it  a  prodigious  advantage 
over  the  other  in  the  power  of  producing  wealth.  One  man 
with  simple  tools  may  do  the  work  of  ten  men  equally  well 
fed,  but  having  only  their  hands  to  work  with.  Ten  men  with 
the  wood-working,  cotton  and  wool-working,  or  metal-work- 
ing machinery  of  to-day,  run  by  steam  or  water  power,  may 
easily  do  the  work  of  a  thousand,  with  distaff,  chisel,  saw  and 
axe. 


CHAPTER  IV. 

THE    PRODUCTIVE    CAPABILITY    OF    A    COMMUNITY. 

99.  We  have  spoken,  in  succession,  of  land  power,  labor 
power  and  capital  power.  The  productive  capability  of  any 
community  is  determined  by  these  three  elements,  in  the 
degrees  in  which  they  are  severally  found  to  exist  there. 

While  the  land  remains  in  the  condition  of  increasing 
returns  (Par.  50),  as  in  the  Eastern  States  of  the  American 
Union  during  their  earlier  history,  production  may  be  large, 
per  head  of  population,  with  but  a  small  amount  of  capital 
available.  Even  after  cultivation  has  reached  the  condition 
of  diminishing  returns  (Par.  51),  the  energy,  intelligence  and 
skill  of  the  laboring  class,  and  the  thorough  organization  of 
industry,  may  wrest  a  comparatively  high  rate  of  produce 
from  the  reluctant  soil  ;  or,  in  spite  of  an  ignorant,  clumsy 


70  POLITICAL  ECONOMY. 

and  spiritless  population,  as  in  the  west  of  England,  the  con* 
centration  of  a  vast  capital  upon  a  naturally  rich  soil  may 
yield  large  returns,  long  after  the  same  stage  of  cultivation 
has  been  reached. 

100.  Where  all  three  conditions  are  found  favorable  to  pro- 
duction, i.  e.,  fertile  lands  not  yet  fully  taken  up,  an  intelli- 
gent and  energetic  laboring  population,  with  abundant  capital, 
as  in  the  opening  up  of  parts  of  our  Western  States  within  the 
last  thirty  years,  and  notably  in  the  development  of  Minnesota 
and  Dakota  now  going  on,  the  rate  at  which  wealth  grows 
appears   almost   fabulous.     Surely,  inevitably,  however,  the 
increase  of  population  will  bring  about  the  condition  when  an 
increasing  labor  power  and  capital  power  must  struggle  with 
a  decreasing  capability  of  the  soil.     Mechanical  inventions, 
chemical  discoveries,  may  long  postpone  the  diminution  of  the 
per-capita  product ;  all  improvements  in  the  industrial  char- 
acter of  the  working  classes,  or  in  the  organization  of  labor, 
enable  a  larger  population  to  be  supported  without  reduction 
in  the  quality  of  their  subsistence  ;  but  not  the  less  is  the 
power  of  one  of  the  factors  of  production  steadily  on  the 
decline. 

This  principle  applies,  be  it  observed,  only  to  the  per-cap- 
ita product.  The  absolute  quantity  produced  increases  con- 
stantly with  every  increment  of  labor  or  capital  judiciously 
applied  to  the  land.  There  never  comes  a  time  when  more 
laborers  will  not  produce  larger  harvests.  There  never  comes 
a  time  when  additional  capital  introduced  into  agriculture 
•cannot  secure  for  itself  some  return. 

101.  Such  is  the  condition   under  which  the  earth  is  culti- 
vated by  human  labor,  for  the  supply  of  human  wants.     The 
production  of  wealth  by  mechanical  processes  is,  however,  as 
we  have  seen  (Par.  53.),  subject  to  this  condition  only  so  far 
as  relates  to  the  materials  employed  in  manufactures,  all  of 
which  are  derived  from  agriculture.      The  mechanical  pro- 
cesses  themselves    are    subject    to   no  such  drawback.      On 
the  contrary,  the  increase  of  population  for  a  considerable 
period  allows  the  division  of  labor  to  take  place  more  fully, 
with  the  result  of  enlarged  production.     Hence  the  multipli- 


PRODUCTIVE    CAPABILITY.  71 

cation  and  diversification  of  conveniences  and  refinements, 
so  far  as  they  involve  no  increase  in  the  amount  of  material 
consumed,  may  be  carried  forward  literally  without  limit.* 
Labor  and  capital  here  act  with  prodigious  force,  not,  as  we 
might  say,  by  addition,  but  by  multiplication,  each  step  ren- 
dering every  successive  step  easier,  as  the  force  of  habit  and 
invention  give  to  production  a  constantly  accelerating  rate  of 
movement. 

102.  Productive  Capability  not  fully  Realized. — Produc- 
tive capability  being  thus  determined  by  the  three  elements 
which  have  been  stated,  the  greatest  question  which  the  econ- 
omist has  to  answer,  the  most  difficult,  the  most  important 
question  in  economics,  is,  why  the  actual  production  of  wealth 
falls  so  far  short  of  its  productive  capability.  But  this  is  a  ques- 
tion which  cannot  be  finally  answered  till  the  reader  has  been 
taken  through  all  the  departments,  by  turns,  of  economic 
science.  It  is  not  until  the  economist  reaches  the  department 
of  consumption,  that  he  can  show  how  the  use  which  is  made 
of  wealth  may  waste  the  capital  power  of  a  community, 
or  may  impair  its  labor  power  through  the  effects  of  vicious 
indulgence  upon  muscular  strength  and  upon  the  will  of 
the  laborer.  In*  the  department  of  distribution,  again,  we 
shall  see  how  the  division  of  the  product  of  industry, 
among  the  several  persons  and  classes  of  persons  engaged, 
may  work  great  and  permanent  injury  to  those  who  are 
at  disadvantage  in  making  their  claim  ;  and  how  disputes  and 
contests  over  that  division  may  seriously  reduce  the  amount  to 
be  divided.  In  the  department  of  exchange,  the  economist 
meets  the  question  in  a  special  form,  namely,  what  is  the 
cause  of  those  occasional  stoppages  of  production  which 
are  known  as  crises,  or  "  hard  times,"  when  the  wheels  of 
industry  move  with  painful  slowness,  and  the  wealth  which 
has  been  gathered  in  preceding  periods  is  wasted  in  an  inact- 
ivity from  which  all  classes  suffer,  and  yet  for  which  no  one 
seems  accountable,  since  all  are,  or  profess  to  be,  ready  and 

*  The  important  mistake  committed  by  Mr.  Henry  George,  through 
overlooking  this  point,  will  be  indicated  in  Par.  515-7. 


72  POLITICAL   ECONOMY. 

desirous  to  work.  Under  each  of  these  titles,  thus,  we  shall 
find  something  by  which  to  explain  the  phenomenon  that  the 
actual  production  of  every  commercial  and  manufacturing 
country,  taking  a  term  of  years  together,  falls  far  below  the 
possible  production. 

1O3.  Industrial  Structure. — Even  under  the  present  title, 
we  have  to  note  a  liability  which  besets  the  productive  power  of 
a  community  arising  from  what  we  may  term  its  industrial 
structure.  By  this  term  is  intended  that  organization  of  the 
capital  power  and  the  labor  power  of  a  community,  which 
makes  the  productive  capability  of  the  whole  depend,  in  a 
greater  or  less  degree,  upon  the  character  of  individuals  or 
classes  of  individuals,  and,  in  consequence,  upon  accidents 
affecting  the  fortunes  of  such  individuals  or  classes.  This  is 
a  matter  far  too  little  regarded  in  reasoning  about  the  wealth 
of  nations  and  communities.  Writers  in  economics  are  apt  to 
speak  of  the  labor  power  and  the  capital  power  of  a  commun- 
ity as  if  they  were  aggregates  of  pure  force.  No  reference 
is  made  to  structural  organization.  Complete  homogeneity 
and  the  highest  mobility  are  assumed  for  the  whole  labor- 
mass  and  the  whole  capital-mass. 

In  such  a  way  of  looking  at  the  subject  we  lose  sight  of 
the  possibilities  of  great  loss  to  production  arising  out 
of  two  conditions. 

104-  (a)  Partial  Immobility  of  Capital  and  Labor. — In  all 
advanced  industrial  societies,  labor  and  capital  become  com- 
mitted to  certain  courses,  from  which  they  can  only  depart 
after  much  delay,  against  great  resistance,  at  heavy  cost.  We 
have  seen  how  vast  is  the  increase  in  productive  power  caused 
by  the  division  of  labor,  the  differentiation  of  industrial  func- 
tions, the  specialization  arid  localization  of  trades  and  the 
organization  of  the  productive  forces. 

Precisely  according  to  the  chances  of  gain  resulting  here- 
from,  is  the  risk  of  loss,  in  the  case  of  mistake  or  misadvent- 
ure. The  artisan  who  has  learned  a  trade  becomes  compara- 
tively helpless  if  the  opportunities  for  working  at  that  trade 
are  taken  away.  The  factory  hand  who  has  learned  to  per- 
form only  one  operation  out  of  the  multitude  that  go  to  the 


MISDIRECTION    OF    FORCE.  73 

spinning  of  a  single  yard  of  cloth,  can  do  little  if  he  be  thrown 
out  of  the  place  where  that  operation  is  to  be  performed  in 
immediate  connection  with  all  the  others.  In  theory,  the 
artisan  or  the  factory  hand  may  turn  to  some  other  field  of 
production,  and  soon  acquire  the  knowledge  and  the  manual 
skill  required  in  some  new  art  or  trade.  The  observation  of 
large  populations,  through  long  periods,  shows  that  such  read- 
justments of  specialized  labor  demand  more  energy  and  more 
enterprise  than  are  possessed  by  most  laborers,  occupy  a  great 
deal  of  time,  at  the  best,  and  involve  no  small  waste  of  labor 
power. 

Not  infrequently  that  readjustment  is  not  fully  accomplished 
in  the  generation  that  first  feels  the  necessity  for  it.  The 
population  or  class  of  laborers  upon  whom  this  demand  is 
made,  prove  unequal  to  the  task,  lose  hopefulness,  courage 
and  self-respect,  and  by  a  slow  decline  sink  into  pauperism, 
squalor,  vagabondage  and  vice,  too  often  transmitting  tainted 
blood  and  tainted  minds  to  the  generation  that  follows. 

105.  (b)  Misdirection  of  Labor  and  Capital. — Capital  power 
and,  in  perhaps  a  greater  degree,  labor  power  are  in  the  hands 
of  individuals  whose  peculiarities  of  character,  of  habitude, 
of  station,  seriously  modify  the  application  of  capital  and 
labor  to  production  ;  whose  mistaken  aims,  whose  erroneous 
impulses,  may  divert  these  forces  from  the  object  which  we 
have  supposed  them  to  be  seeking  with  an  unremitting  and 
an  unmistaking  attraction  ;  wrhose  accidents  of  fortune  may 
impair  the  energy  of  the  industrial  movement,  or  for  a  time 
arrest  it  completely. 

The  most  familiar  illustration  we  could  use  is  that  of  a  fac- 
tory whose  master  has  suddenly  died.  The  labor  power 
remains  ;  the  capital  power  remains  ;  but  the  spring  that  set 
them  in  motion  is  broken.  It  may  happen  that  a  son,  or  a 
partner,  of  equal  ability,  will  at  once  step  forward  and  take 
up  the  burden  that  has  fallen  from  the  nerveless  hands.  It 
may  be,  on  the  other  hand,  that  a  long  period  of  embarrass- 
ment will  result,  during  which  labor  and  capital  will  stand 
idle.  Perhaps  the  loss  will  never  be  made  good.  An  incom- 
petent person  succeeds  by  right  of  relationship.  Bad  manage- 


74  POLITICAL  ECONOMY. 

merit  dissipates  both  the  accumulated  wealth  and  the  reputa- 
tion of  the  establishment.  After  a  dreary  struggle,  the  stock 
and  fixtures  are  sold,  the  factory  is  dismantled,  and  the  opera- 
tives go  forth  to  find  employment  elsewhere  as  they  may. 
There  is  many  a  thriving  town  in  New  England,  whose  only 
reason  for  growth,  through  fifty  years,  from  small  beginnings, 
has  been  found  in  the  accident  of  the  birth  there,  and  the  long 
life,  of  a  single  energetic,  able,  careful  man  of  business. 
There  is  many  a  "  deserted  village  "  whose  decay  dates  from 
the  sickness  or  death  of  one  man,  out  of  the  many  hundreds 
who  thronged  its  streets. 

So  difficult  is  the  control  and  direction  of  capital  and  labor, 
that  a  distinct  class  is  called  into  being,  in  all  industrially 
advanced  communities,  to  undertake  that  function.  This 
class  is  known  as  the  employing  class,  or,  to  adopt  a  word  from 
the  French,  the  entrepreneur  class. 

106.  The  Entrepreneur  Class. — Mastership  is  essential  to 
a  large  and  varied  production.  The  industrial  enterprises  of 
the  civilized  states  could  not  have  been  brought  to  their  pres- 
ent height  without  mastership,  and  could  not  be  maintained  at 
that  height  one  year  without  it.  Whatever  may  be  true  of 
politics,  the  industry  of  the  world  is  not  tending  toward 
democracy,  but  in  the  opposite  direction. 

In  its  first  stages,  the  division  of  labor  does  not  necessarily 
imply  the  introduction  of  the  master-class.  When  the  forms 
of  production  are  few  ;  when  materials  are  simple  ;  when  only 
hand-tools  are  used  ;  when  each  artisan  working  at  his  bench 
makes  the  whole  of  the  article  to  be  marketed  ;  when  styles 
are  standard,  and  the  consumers  of  the  product  are  found  in 
the  immediate  neighborhood,  the  need  of  the  master  is  not 
felt.  But  when  the  hand-loom  gives  way  to  the  poAver-loom  ; 
when  the  giant  factory  absorbs  a  thousand  petty  shops  ;  when 
many  persons,  of  all  degrees  of  skill  and  strength,  contribute 
to  a  result  which  perhaps  not  one  of  them  comprehends  per- 
fectly or  at  all  ;  when  machinery  is  introduced  Avhich  deals 
with  the  gauzy  fabric  more  delicately  than  the  human  hand, 
and  crushes  stone  and  iron  with  the  force  of  lightning  ;  when 
costly  materials  require  to  be  brought  from  the  four  quarters 


THE   ENTREPRENEUR.  75 

of  the  globe,  and  the  products  are  distributed  by  the  agen- 
cies of  commerce  through  every  land  ;  when  fashion  enters, 
demanding  incessant  changes  in  form  or  substance  to  meet  the 
caprices  of  the  market,  then  the  master  becomes  a  necessity  of 
the  situation. 

His  work  is  not  alone  to  enforce  discipline  through  the  body 
of  laborers  thus  brought  under  one  roof  ;  not  alone  to  organ- 
ize these  parts  into  a  whole  and  keep  every  part  in  its  place, 
at  its  proper  work  ;  not  alone  to  furnish  technical  skill,  and 
exercise  a  general  care  of  the  vast  property  involved.  Be- 
yond these  and  far  more  than  these,  he  is  called  upon  to 
assume  the  responsibilities  of  production  ;  to  decide  what 
shall  be  made,  after  what  patterns,  in  what  quantities,  at  what 
times  ;  to  whom  the  product  shall  be  sold,  at  what  prices,  and 
on  what  terms  of  payment.  The  armies  of  industry  can  no 
more  be  raised,  equipped,  held  together,(  moved  and  engaged, 
without  their  commanders,  than  can  the  armies  of  war. 

107.  Those  conditions  of  production  which  bring  to  the 
laborer  the  necessity  of  finding  a  master  under  whom  he  can 
work,  bring  to  the  man  of  superior  abilities  and  acquirements 
the  opportunity  to  employ  his  powers  for  the  greatest  econo- 
mic advantage  of  society  and  for  the  greatest  profit  to  himself. 
In  a  community  where  division  of  labor  has  proceeded  but  a 
little  way,  the  man  of  intellect  moves  but  one  pair  of  arms. 
In  a  highly  organized  industrial  system,  he  moves  a  thousand. 

One  man  who  has  the  genius  to  plan  finds  a  host  of  helpers, 
each  of  whom  can  execute  his  schemes  nearly  if  not  quite  as 
well  as  he  himself  individually  could,  who  yet  would  have 
been  wholly  helpless  and  amazed  in  the  presence  of  the  exi- 
gencies, the  difficulties,  the  dangers,  which  only  arouse  the 
spirit  of  the  master,  stimulate  his  faculties,  and  afford  him  the 
keenest  zest  of  enjoyment. 

108.  Whether  we  regard   this  as  the  ideal  state  or  not, 
whether  we  rejoice  or  repine  at  the  extension  of  the  principle 
of  mastership  in  industry,  it  is  the  most  characteristic  fact  of 
the  industrial  system  of  to-day.     It  is  likely  to  gain  rather 
than  to  lose  importance  in  the  years  to  come. 

During  the  great  moral  and  political  fermentation,  which 


76  POLITICAL  ECONOMY. 

brought  on  the  Revolution  of  1848,  the  attention  of  social 
reformers  in  France  was  called  to  the  possible  benefits  of  Co- 
operation, being  an  industrial  system  in  which  mastership 
should  disappear.  Not  a  few  of  the  English  economists,  and, 
following  them,  American  economists  generally,  have  been  led 
to  take  up  co-operation  as  a  practicable  scheme,  which  only 
needs  to  be  tried  in  order  to  work  the  most  beneficent  results. 

So  far  from  it  being  true  that  the  abolition  of  mastership  is 
at  present  feasible,*  there  never  was  a  time  when  the  distance 
between  the  man  and  the  master  was  so  wide  as  it  is  to-day. 
Nay,  the  distance  between  the  mere  superintendent,  or  over- 
seer, on  the  one  hand,  who  thoroughly  understands  the  techni- 
calities of  production,  and  has  all  the  ability  required  for  exe- 
cuting orders,  for  enforcing  discipline  among  the  working  force, 
and  for  keeping  the  machinery  of  the  mill  smoothly  running, 
and  the  real  master,  the  organizer  and  energizer,  on  the  other,  is 
greater  to-day  than  it  ever  was  before.  That  distance,  so  far 
as  I  can  judge,  tends  continually  to  increase.  The  possibili- 
ties of  gain  or  of  loss  were  never  so  great  as  now.  The 
choices  and  decisions  essential  to  the  conduct  of  business  were 
never  so  frequent  or  so  difficult.  The  difference  in  the  prod- 
uct, which  results  from  the  difference  between  the  able  and 
the  inferior  management  of  affairs,  was  never  so  great.  The 
toleration  offered  to  the  commonplace  in  industry  was  never 
so  small. 

109.  Possibilities  of  Industrial  Damage  Involved  in  the 
Entrepreneur  System. — While  the  entrepreneur  system  is, 
thus,  an  agency  of  the  highest  efficiency  in  increasing  the  pro- 
ductive power  of  a  community  ;  becomes,  indeed,  the  condi- 
tion without  which  the  industrial  enterprises  of  modern  society 
could  not  exist,  it  will  be  seen  that  it  involves  the  possibility 
of  industrial  disasters  commensurate  with  the  forces  it  sets 
in  motion.  Just  as  the  accidents  of  the  railway  are  more 

*  I  speak  here  of  industry  as  a  whole,  and  especially  of  the  largest 
branches,  supplying  general  markets.  When  we  come  to  speak  of 
Industrial  Co-operation,  in  Part  VI,  I  shall  note  certain  possible  excep- 
tions, in  the  case  of  smaller  branches  of  industry  supplying  narrower 
markets. 


LOSS   OF  PRODUCTIVE   FORCE.  77 

destructive  and  fearful  than  those  of  the  wagon  road,  so  do 
the  catastrophes  of  modern  production  exceed,  in  their  wreck 
of  fortune  and  waste  of  capital,  all  that  is  possible  under  the 
less  ambitious  organization  of  productive  agencies.  The  mis- 
takes of  the  man  who  controls  a  thousand  workmen  are  multi- 
plied a  thousand  fold. 

And  those  mistakes  will  not  be  infrequent.  While  the 
entrepreneur  class  in  any  community  consists  generally  of 
strong  men,  that  class  contains  many  persons  who  by  the  acci- 
dent of  fortune  have  come  into  the  control  of  the  agencies  of 
production  without  the  necessary  qualifications,  and  who 
habitually  mismanage  and  misdirect  these  agencies,  to  the 
lowering  of  the  general  scale  of  productiveness  in  the  com- 
munity. Moreover,  the  ablest  men  of  business  themselves  fall 
far  short  of  the  ideal  standard.  Not  to  speak  of  intellectual 
failings,  infirmities  of  the  will  are  such  as  to  make  it  a  mat- 
ter of  course  that  no  small  part  of  the  industrial  power  placed 
in  the  hands  of  the  entrepreneur  class  will  be  misdirected. 
The  perfect  temper  of  business  is  found  in  few  men  :  oscilla- 
tions between  recklessness,  on  the  one  hand,  and  over-cautious- 
ness, on  the  other,  constitute  the  rule,  while  absolute  self -poise 
is  the  rare  exception.  In  paragraphs  313  to  314,  are  indicated 
certain  causes  which  tend  to  multiply  the  proportion  of 
incompetent  employers. 

11O.  Destruction  of  Wealth. — Another  cause  which  re- 
quires to  be  mentioned,  as  in  a  degree  accounting  for  the  fail- 
ure of  industrial  society  to  accumulate  wealth  and  maintain  a 
productive  capability  corresponding  to  the  theoretical  efficiency 
of  the  three  primary  agents  of  production,  land,  labor,  and 
capital,  is  the  actual  destruction  of  wealth  by  accident  or  con- 
vulsions of  nature.  The  losses  by  fire,  alone,  in  the  United 
States  probably  exceed  a  hundred  millions  of  dollars  a  year, 
if  structures  only  are  considered  ;  while  were  we  to  add  the 
damage  to  crops  and  forests,  the  sum  of  wealth  consumed  by 
this  fearful  agent  would  be  greatly  increased.  Hurricanes, 
and  storms,  and  floods,  and  accidents  by  rail,  annually  waste 
and  destroy  no  inconsiderable  portion  of  the  products  of  human 
skill  and  toil. 


PART    III— EXCHANGE. 


CHAPTER  I. 

THE   THEORY    OF   VALUE. 

111.  Exchange  as  a  Department  of  Political  Economy .— 
We  have  seen  that  there  is  a  tendency  among  recent  writer* 
to  abolish  the  familiar  departments  of  political  economy,  sev- 
erally known  as  production,  exchange,  distribution  and  con- 
sumption, as  interfering  unduly  with  the  simplicity  and 
perhaps  with  the  dignity  of  the  science  they  have  chosen  to 
cultivate.  Even  of  those  who  have  retained  certain  of  these 
titles,  there  is  a  general  consent  at  least  to  abandon  exchange, 
as  a  department  of  political  economy.* 

I  am  disposed  to  think  that  this  general  abandonment  of 
exchange,  as  a  distinct  title  in  political  economy,  is  due  to  a 
confusion  of  exchange  with  trade  or  commerce,  viewed  as 
productive  agencies.  It  is  seen  that  the  most  of  what  is  done 
in  trade  or  commerce  pertains  to  the  production  of  wealth. 
The  labor  employed  in  packing  or  baling  goods,  in  transport- 
ing them  to  market,  in  opening  and  exposing  them  for  sale,  is 
engaged  in  the  production  of  wealth,  equally  with  that 
employed  in  raising  the  raw  materials  from  the  ground,  or 
fashioning  them  into  merchantable  shapes.  Values  are  created 
as  truly  in  the  one  case  as  in  the  other.  Even  the  labor  of  the 
clerks  and  salesmen  is  productive  labor  as  much  as  that  of  the 
artisan  or  the  agriculturist.  The  horses  and  wagons,  the 
locomotives  and  cars,  the  shops  and  warehouses,  of  trade  and 
commerce  are  strictly  productive  agencies. 

*  To  this  Mr.  Mill  forms  a  conspicuous  exception.  He  makes  exchange, 
as  distinguished  from  production  and  from  distribution,  the  subject  of 
one  of  the  books  of  his  Political  Economy. 


THE   RATIOS   OF  EXCHANGE.  79 

What  is  it,  then,  that  need  be  considered  under  the  title, 
exchange  ?  What  is  left,  after  production  has  been  fully 
treated  ?  Why  should  this  department  of  political  economy 
be  retained  ? 

Under  the  title,  exchange,  in  a  systematic  treatise  on  politi- 
cal economy,  I  would  consider  the  Ratios  of  Exchange,  the 
terms  on  which  goods,  commodities,  articles  possessing  value, 
items  in  the  sum  of  wealth,  exchange  for  one  another.  We 
are  here  called  to  answer  the  question  :  Why  does  so  much 
of  this  commodity  exchange  for  so  much  of  that?  Why  not 
for  more  ?  Why  not  for  less  ? 

Such  a  question,  it  appears  to  me,  can  best  be  treated  apart 
from  the  exposition  of  the  physical  conditions  under  which 
wealth  is  produced  (as,  for  instance,  the  efficiency  of  the  divi- 
sion of  labor,  or  the  diminishing  productiveness  of  land); 
apart  from  the  discussion  of  the  forces  by  which  the  product 
of  industry  is  distributed  in  wages,  interest,  profits,  rent ; 
apart,  also,  from  the  question,  what  effects  upon  the  future 
production  of  wealth  will  be  wrought  by  giving  one  direction, 
or  another,  to  the  consumption  of  the  existing  body  of  wealth. 

112.  Exchange  Arises  out  of  the  Division  of  Labor.— 
The  occasion  for  exchange  arises  out  of  the  division  of  labor. 
Were  all  persons  engaged  in  the  same  productive  avocations, 
there  would  be  no  inducement  to  exchange.  To  barter  fish 
for  fish,  or  bread  for  bread,  would  be  simply  a  waste  of  time 
and  energy.  It  is  because  men  first  divide  in  production  that 
they  afterward  unite  in  exchange.  It  would  be  easy  to  con- 
ceive a  community  in  which  each  producer  should  be  engaged 
in  precisely  the  same  w^ork  as  every  other,  each  raising  from 
the  ground  or  making  by  the  labor  of  his  hands  all  that  he 
were  to  eat,  drink  or  wear.  In  such  a  situation,  all  that  has 
been  said  of  the  causes  of  the  varying  efficiency  of  individual 
laborers  would  hold  good  ;  all  that  has  been  said  concerning 
"  diminishing  returns  in  agriculture,"  all  that  has  been  said  of 
the  origin  and  office  of  capital,  would  still  hold  good.  But 
there  would  be  no  actual  exchange,  because  there  would  be  no 
division  of  labor. 

Let,  however,  the  production  of  the  individuals  of  a  com- 


8o  POLITICAL  ECONOMY. 

raunity  be  varied  by  ever  so  little,  the  occasion  for  exchange 
will  arise.  If  one  agriculturist  raise  wheat,  another  rye,  an- 
other potatoes;  and  if  others  raise,  some  cattle,  some  sheep, 
some  swine,  the  products  will  soon  begin  to  be  exchanged. 
Then  the  question  will  arise,  how  much  wheat  shall  be  given 
for  a  bushel  of  rye  or  potatoes;  how  many  sheep  or  swine  for 
an  ox? 

Let  the  principle  of  the  division  of  labor  be  carried  further, 
until  a  score  or  a  hundred  of  mechanical  arts  and  trades  and 
half  a  dozen  learned  professions  come  to  be  recognized,  and 
the  occasions  for  exchange  will  rapidly  extend  to  a  large  part 
of  the  entire  production  of  the  community.  The  farmer  may 
still  consume  a  half  *  of  his  own  corn  and  beef  and  potatoes, 
but  the  smith  will  scarcely  consume  the  product  of  his  own 
labor  for  three  days  in  the  year;  the  boot-maker  will  be  con- 
tent with  one  out  of  fifty  pairs  of  boots  he  makes  in  the  same 
time  ;  the  physician  will  probably  take  none  of  his  own  medi- 
cines. 

113.  An  Exchanging  Class. — And  it  will  result,  either  that 
these  persons,  having  occasion  to  exchange  their  products  for 
those  of  others,  will  have  to  give  up  an  appreciable  portion  of 
their  time  to  making  those  exchanges  in  person,  or  else,  the 
work  of  making  exchanges  will  become  the  subject  matter  of 
a  new  profession  or  avocation. 

If  the  smith  can  in  one  day  make  as  many  horseshoes  as 
the  farmer  could  in  ten  ;  and  if  the  farmer  can  in  one  day  do 
as  much  in  raising  wheat  as  the  smith  could  in  two  or  three, 
it  is  evident  that  the  peddler  or  shopkeeper  who  enables  the 
farmer  to  keep  steadily  at  work  raising  wheat  and  yet  have 
shoes  for  his  horses,  and  the  smith  to  keep  making  shoes  and 

*  In  England,  says  Prof.  Roscher,  it  is  38.8  per  cent,  of  the  supply 
that  comes  to  the  market ;  in  Belgium,  40  ;  in  Saxony,  at  least  50  per 
cent.  In  Germany,  the  farmers  consume  on  an  average,  two-thirds  them- 
selves. 

The  ratio  between  the  portion  of  the  crop  marketed  and  the  portion 
consumed  at  home,  is,  of  course,  not  the  same  for  any  two  countries,  or 
for  the  same  country,  at  any  two  dates.  It  is  continually  changing  with 
changes  in  the  habits  of  living  among  the  people,  with  changes  in  the 
facilities  of  transportation,  etc. 


WHAT  IS    VALUE?  81 

nothing  else,  and  yet  have  bread  to  live  upon,  is  a  productive 
agent  as  truly  as  smith  or  farmer. 

Just  as  the  division  of  labor  between  the  individuals  of  a 
community  gives  rise  to  exchange,  so  the  extension  of  the 
same  principle  to  the  communities  of  any  country,  or  still  fur- 
ther, to  all  the  countries  of  the  world,  creates  new  occasions 
for  exchange  and  rapidly  multiplies  the  objects  to  be  ex- 
changed. In  all  these  successive  cases  the  agencies  by  which 
exchanges  are  effected  :  the  labor  of  the  men  engaged  in  trade 
or  transportation  ;  the  horses  and  'wagons,  the  steam-cars 
and  ships ;  the  services  of  the  clerks  who  write  orders  for 
goods  and  keep  account  of  sales  and  payments,  of  the  bankers 
who  advance  the  requisite  capital  or  remit  the  proceeds  of 
commercial  ventures,  even  of  the  shipping  reporters  and  finan- 
cial editors  who  supply  the  information  upon  which  merchants 
and  bankers  alike  must  act,  all  these  agencies  are  as  truly  pro- 
ductive of  wealth  as  the  labor  of  mechanics  or  miners  or  agri- 
culturists, and  are  to  be  treated  under  the  title,  production. 

We  have,  under  the  title  exchange,  only  to  investigate  the 
principles  which  determine  that  so  many  dozens  of  wood 
screws  made  in  Providence  or  so  many  pounds  of  horseshoe 
nails  made  in  Troy,  shall  purchase  so  much  of  the  wheat  of 
Illinois,  the  tobacco  of  Kentucky,  the  sugar  or  molasses  of 
Cuba,  the  tea  of  China. 

114.  Value. — Whence  comes  this  power-in-exchange?  What 
are  its  conditions,  and  what  its  limitations  ? 

We  have  defined  value  as  the  power  which  an  article  con- 
fers upon  its  possessor,  irrespective  of  legal  authority  or  per- 
sonal sentiments,  of  commanding,  in  exchange  for  itself,  the 
labor,  or  the  products  of  the  labor,  of  others. 

But  let  us  go  further,  and  inquire  how  it  is  that  one  article 
confers  on  its  possessor  such  a  power,  while,  an  other  does  not; 
why  it  is  that,  of  two  articles  of  value,  one  confers  the  power 
of  commanding  the  labor  of  others  for  weeks  or  years,  while 
another  is  parted  with  for  the  service  of  a  day  or  an  hour. 

115.  Value  and  Price.— But,  first,  let  us  introduce  a  term, 
the  use  of  which  is  not  absolutely  necessary  at  this  point,  but 
which  will,  nevertheless,  save  much  circumlocution,  and  per- 


82  POLITICAL  ECONOMY. 

haps  avoid  a  liability  to  misunderstanding — that  term  is  Price. 
Value  is,  briefly  speaking,  purchasing  power,  or  power  in  ex- 
change. Price  is  purchasing  power  expressed  in  terms  of 
some  one  article  ;  power-in-exchange-for-that-article,  be  the 
same  wheat,  or  beef,  or  wool,  or  gold,  or  silver.  In  common 
speech  the  word  price  brings  up  the  idea  of  money-value,  the 
purchasing  power  of  an  article  expressed  in  terms  of  money. 
Yet  it  is  equally  correct  to  say  that  the  price  of  a  horse  is 
seventy-five  bushels  of  wheat,  as  to  say  that  it  is  one  hundred 
dollars.  Inasmuch  as  we  have  not  yet  introduced  the  money 
function  into  our  discussion,  the  word  price,  throughout  the 
present  chapter,  will  be  understood  in  its  more  general  sense, 
as  the  purchasing  power  of  a  commodity  expressed  in  terms 
of  some  other  article. 

116.  Distinction  between  Value  and  Utility.— In  setting 
out  upon  our  search  for  the  law  of  value,  a  distinction  of  great 
importance  requires  to  be  made.  Value  must  be  severely  dis- 
tinguished from  utility.  Many  economists  of  merit  have 
stumbled  at  this  point.  Even  of  those  who  have  observed  the 
distinction  between  the  two  conceptions,  some  have  resorted 
to  unfortunate  terms  for  their  characterization,  and  have 
written  of  value  in  use  and  value  in  exchange.  Now,  value 
in  use  is  utility,  and  nothing  else,  and  in  political  economy 
should  be  called  by  that  name  and  no  other.  Value  is  power- 
in-exchange,  and,  therefore,  the  term  value-in-exchange  is  seen 
to  be  a  bad  one,  at  once  clumsy  and  misleading. 

Nor  must  it  be  thought  that  value  and  utility  have  any  such 
necessary  and  constant  relation  to  each  other  that  one  may 
safely  be  used  for  the  other.  On  the  contrary,  an  article  may 
have  the  highest  conceivable  utility,  yet  no  value. 

The  utility  of  atmospheric  air  is  inexpressible.  Atmospheric 
air  has  usually  no  value,  because  it  is  supplied  naturally,  in 
such  abundance  that  any  one  can  have  as  much  of  it  as  he  has 
occasion  to  use  without  giving  for  it  either  his  labor  or  the 
products  of  his  labor.  Even  atmospheric  air  may,  however, 
acquire  value  and  be  sold  at  a  regular,  definite  price,  so  much 
per  cubic  foot,  as  when  delivered  through  pipes  to  a  diver 
beneath  the  surface  of  the  ocean. 


WHAT  IS    UTILITY?  83 

The  utility  of  water  is  also  beyond  expression,  yet  ordinarily 
water  lias  no  value.  In  cities,  however,  water  is  delivered  to 
householders  at  fixed  rates,  supposed  to  represent  the  cost  of 
the  service  by  which  the  fluid  is  stored,  conducted  and  deliv- 
ered. Water,  though  ordinarily  to  be  had  gratuitously,  may 
thus  acquire  value.  On  the  other  hand,  something  may  even 
be  paid  for  merely  getting  rid  of  it.  A  party  may  enter  into 
a  contract  for  pumping  it  out  of  a  mine,  or  a  swamp,  or  a 
cellar,  at  so  much  a  gallon.  A  much  higher  price  is  often  paid 
for  removing  the  fluid  from  the  place  where  it  is  not  wanted, 
than  is  commonly  paid  for  bringing  it  to  the  place  where  it  is 
wanted. 

But  while  utility  and  value  must  not,  in  economic  reason- 
ing, be  used  interchangeably,  as  they  so  often  are  in  ordinary 
speech,  utility  is  everywhere  one  of  the  elements  of  value.  It 
is  always  present,  where  value  is  present.  It  can  not  be  assumed 
that  a  man  will  give  his  labor  or  the  products  of  his  labor  for 
that  for  which  he  has  no  use. 

117.  Useful  does  not  mean  Beneficial.  —  It   needs   to   be 
observed  that  the  utility  of  which  the  economist  speaks  is  not 
always  the  utility  recognized  by  the  moral  philosopher  or  the 
physiologist.     By  that  term  the  economist  signifies  only  that 
an  article  answers  a  felt  human  want ;  that  men  have  a  use 
for  it. 

The  appetite  from  which  that  sense  of  want  arises  may  be 
vicious,  the  object  itself  may  be  prejudicial,  even  pernicious. 
Intoxicating  liquors  are,  in  their  main  uses,  injurious  to  body 
and  to  mind  ;  but  so  long  as  men  want  them,  they  have  utility, 
in  the  economic  sense.  So  long  as  men  want  them  and  can 
only  get  them  by  giving  something  for  them,  they  have  also 
value.  Nay,  the  prussic  acid  which  a  desponding  wretch  buys 
of  the  druggist  has  its  value  as  truly  as  the  medicine  which  a 
father  buys  to  save  his  child's  life,  and  has  its  utility,  in  the 
•economic  sense,  as  well. 

118.  Is  Value  a  Momentary  Phenomenon  ?— We  say,  value 
is  power-in-exchange.  Some  writers,  using  this  definition,  have 
proceeded  to  argue  that  value  is  a  momentary  phenomenon, 
beginning  and  closing  with  the  act  of  exchange,  and  that  an 


»4  POLITICAL   ECONOMY. 

article  has  value  only  when  it  is  exchanged  ;  only  while  it  is 
exchanging. 

Is  not  this  to  confound  our  knowledge  of  a  thing  with  the  thing 
itself  ?  A  man  owning  an  article  can  not  know  precisely  what 
it  is  worth  until  he  comes  to  exchange  it.  But  it  may  all  the 
time  be  beyond  the  possibility  of  doubt  that  the  article 
has  purchasing  power ;  it  would  bring  something  in  an 
exchange. 

One  owns  a  house  in  New  York.  He  can  not  know  at  any 
given  time,  without  resort  to  an  actual  exchange,  what  its 
value  is,  since  value  is  power-in-exchange,  and  to  an  exchange, 
as  to  a  quarrel,  there  must  be  two  parties.  The  owner's  per- 
sonal estimate  does  not  fix  the  value,  which  may  prove  much 
below  that  estimate.  But  while  the  owner  may  not  know 
what  is  its  power-in-exchange,  there  may  be  no  room  for 
doubt  that  it  has  such  power.  If  it  would  not  sell  for  $30,000, 
his  estimate,  it  would  bring  $10,000  in  any  conceivable  state 
of  the  market ;  but  if  it  only  brought  $5,000,  or  $5,  it  would 
have  value. 

A  farmer  in  Illinois  has  1,000  bushels  of  wheat,  and  sells 
500  bushels  at  $1.50.  He  knows  that  the  remaining  500 
bushels  have  value  ;  but,  just  what  that  value  is,  he  can  not 
know.  That  the  wheat  would  go  off  at  some  price,  is  beyond 
question  ;  but  it  might  take  a  considerable  reduction,  say  to 
$1.45  or  $1.40  to  carry  it  off  ;  or,  on  the  other  hand,  a  change 
in  the  market  might  put  the  price  up  to  $1.55. 

There  are,  indeed,  circumstances  where  a  man  may  not  be 
able  to  know  that  an  article  in  his  possession  has  value  unless 
he  actually  finds  a  purchaser  for  it.  These  are  cases  where 
the  value  of  an  article  is,  at  the  best,  low  ;  or  where  the  uses 
of  an  article  are  few,  and  the  demand  for  it  spasmodic  and 
intermittent.  But  to  say  that  value  is  a  momentary  phenom- 
enon, only  emerging  in  the  presence  of  a  purchaser,  and 
remaining  only  during  the  consummation  of  a  bargain,  seems 
much  like  saying  that  a  body  has  weight  only  while  some  one 
is  lifting  it. 

119.  What  is  the  Relation  of  Labor  to  Value  ?— We  have 
said  that  value  is  the  power  which  an  article  confers  upon  its 


VALUE  AND  LABOR.  85 

possessor,  irrespective  of  legal  authority  or  personal  senti- 
ments, to  command  in  exchange  for  itself  the  labor,  or  the 
products  of  the  labor,  of  others. 

Does  that  power  arise  solely  and  necessarily  from  the  fact 
that  labor  has  been  bestowed  upon  the  production  of  that 
article  ?  No.  It  is  true  that  men  do  not  commonly  give 
labor  for  that  which  has  not  cost  labor  ;  and  that,  on  the 
whole,  and  in  the  long  run,  the  respective  values  of  a  number 
of  articles  will,  at  least  in  the  same  community,*  be  nearly 
according  to  the  amounts  of  labor  that  have  been  expended 
upon  them,  severally.  But  it  is  not  because  an  article  has  cost 
labor  that  it  possesses  value.  That  is  because  it  can  not  now 
be  obtained  without  labor.  In  any  given  instance  it  is  not 
necessary  that  a  thing,  to  have  value,  should  itself  have  cost 
labor  in  any  degree  ;  while  it  is  not  at  all  uncommon  to  find 
an  article  having  a  value  equal  to  that  of  another  article 
which  cost  twice  as  much  labor  as  itself. 

120.  Prof.    Senior's    Statement. — Prof.  Senior   remarks: 
"  Any  other  cause  limiting  supply,  is  just  as  efficient  a  cause 
of  value  in  an  article,  as  the  necessity  of  labor  to  its  produc- 
tion.    And,  in  fact,  if  all  the  commodities  used  by  man  were 
supplied  by   nature  without   any   intervention   whatever   of 
human  labor,  but  were  supplied  in  precisely  the  same  quanti- 
ties as  they  now  are,  there  is  no  reason  to  suppose  that  they 
would  either  cease  to  be  valuable,  or  would  exchange  in  any 
other  than  their  present  proportions." 

Prof.  Senior  elsewhere  inquires  :  "  Suppose  meteoric  iron 
were  the  only  form  in  which  that  metal  were  produced,  would 
not  the  iron  supplied  from  heaven  be  far  more  valuable  than 
any  existing  metal  ?  " 

121.  Here  is  an  autograph  of  John  Milton.     The  lines  may 
have  been  written  to  a  friend,  or  from  a  mere  freak  of  fancy, 
or  to  occupy  an  idle  moment.     Labor,  in  the  economic  sense, 
there  was  none.     Yet  the  autograph  may  be  worth  $20  ;  that 
is,  may  command  for  its  possessor  the  labor  of  a  skilled  work- 

*  The  significance  of  this  qualification  will  be  seen  when  we  come  to 
speak  of  International  Exchanges,  in  the  following  chapter. 


86  POLITICAL   ECONOMY. 

man  for  ten  days,  of  ten  working  hours  each.  Here  is  a  high 
degree  of  value  (that  is,  command  of  the  labor  of  others) 
where  yet  no  labor  has  been.  The  explanation  is  found  in  the 
fact  that  Milton  is  dead,  and  his  remaining  autographs  are 
few,  while  many  people  want  them,  and  want  them  very  much. 
This  is  an  instance  of  what  maybe  called  "monopoly- 
value,"  or  as  some  prefer  to  call  it,  scarcity-value.  The  value 
here  is  altogether  irrespective  of  the  amount  of  labor  expended 
upon  the  production  of  the  article,  simply  because  the  article 
can  not  be  reproduced,  or  the  stock  of  it  replaced  by  labor. 

122.  Cost  of  Production,   or  of  Reproduction. — Again, 
take  the  case  of  an  article  which,  by  reason  of  the  discovery 
of  new  fields  of  the  raw  material,  or  of  some  mechanical  inven- 
tion, can  now  be  produced  with  the  expenditure  of  half  as 
much  labor  as  formerly.     Will  the  value  of  the  stock  of  such 
goods  on  hand  be  influenced  by  the  original  cost  of  producing 
them  ?     Not  at  all.     They  will  exchange  for  other  products 
on  the  same  terms  as  the  goods  brought  into  the  market  under 
the  new  conditions. 

In  the  same  way,  if  the  amount  of  labor  required  for  the 
production  of  this  kind  of  goods  should  suddenly  increase, 
from  the  diminution  of  the  supply  of  materials,  or  other  cause, 
the  stock  on  hand  would  Acquire  a  higher  value,  corresponding 
to  the  cost  of  bringing  in  new  goods  of  the  same  quality. 

Hence,  in  respect  to  all  goods  which  can  be  produced,  or 
the  supply  of  which  can  be  replaced,  within  the  time  during 
which  those  who  want  them  are  willing  to  wait  for  them,  we 
say  that  value  is  determined  not  so  much  by  the  cost  of  pro- 
duction as  by  the  cost  of  reproduction.  They  are  exchanged 
for  the  products  of  others,  not  necessarily  in  proportion  to  the 
amount  of  labor  they  actually  required,  but,  rather,  according 
to  the  amount  of  labor  which  would  now  replace  the  stock. 

123.  Time  an  Element. — I  said,  "  within  the  time  during 
which  those  who  want  them  are   willing  to  wait  for  them." 
The  fact  that  goods  can  not  be  reproduced,  or  the  stock  of 
them  renewed,  without  a  certain  delay,  may,  for  a  time,  con- 
fer a  monopoly-value  on  the  existing  stock.     Thus,  if  the  sup- 
ply of   food   in    a  city  had   nearly  failed,  the  fact  that   an 


DEMAND  AND   SUPPLY.  87 

abundance  were  certain  to  arrive  in  two  weeks  would  have 
little  or  no  effect  on  the  value  of  the  scanty  store  remaining. 
Men  can  not  wait  two  weeks  for  food.  They  must  have  it  at 
once.  In  their  urgent  necessity,  they  will  exchange  their  labor, 
or  the  products  of  their  labor,  for  continually  smaller 
quantities  of  meat  and  bread,  up  to  the  very  moment  that  the 
ships  which  bear  the  new  supplies  drop  anchor  in  the  harbor. 

124.  It  is  not  Always  the  Cost  of  Reproduction. — But 
while,   as  between  the  cost  of  production  and   the   cost  of 
reproduction,  it  is  the  latter,  and  not  the  former,  which  deter- 
mines the  power  an  article  shall  have  in  exchange  ;  it  is  not 
true  that  value  is  always  determined  by  cost  of  reproduction. 
It  may  be,  in  regard  to  any  given  commodity,  at  any  given 
time,  that  the  cost  of  reproducing  it  would  be  greater,  even 
far  greater,  than  the  price  at  which  it  sells.    How  can  this  be  ? 
I  answer  that  this  might  occur  through  a  diminution  in  the 
occasions  for  the  use  of  that  article. 

Two  generations  ago,  every  decent  family  possessed  a 
spinning-wheel,  and  spinning-wheels  then  bore  a  price  fairly 
proportioned,  we  may  suppose,  to  the  cost  of  their  production 
with  the  tools  and  materials  then  available.  A  little  later, 
when  it  ceased  to  be  customary  to  wear  homespun,  spinning- 
wheels  may  be  said  to  have  had  no  value  at  all.  They  were 
banished  to  attics,  or  turned  into  playthings  for  children,  and 
quickly  smashed  to  pieces.  To-day,  a  fashion  has  come  in,  by 
which  the  spinning-wheel  Ifecomes  the  companion  of  the  dado, 
a3sthetic  furniture,  and  Queen  Anne  windows  ;  and  a  well- 
preserved  and  authentic  specimen  is  worth  more  than  the  sum 
at  which  a  good  reproduction  could  be  made  and  sold. 

125.  Demand  and  Supply. — If  neither  cost  of  production 
nor  cost  of  reproduction  determines  the  power  which  an  arti- 
cle shall  have  in  exchange,  is  there  any  principle  of  universal 
application   on   which   value   rests  ?     I    reply,    yes :     Value 
depends  always  and  wholly  on  the  relation  between  demand 
and  supply. 

These  terms  require  to  be  defined.  It  will  not  answer  to 
trust  to  the  ideas  which  the  words  of  themselves  call  up  in  the 
mind  of  the  reader.  Demand  and  supply  alike  have  refer- 


88  POLITICAL   ECONOMY. 

ence  (1)  to  a  certain  article,  and  (2)  to  a  certain  price.  In 
the  economic  sense,  demand  means  the  quantity  of  a  given 
article  which  would  be  taken  at  a  given  price.  Supply  means 
the  quantity  of  that  article  which  could  be  had  at  that  price. 
Neither  of  these  two  elements  of  demand  and  supply  must 
be  omitted.  From  the  neglect  of  one  of  them  by  many  econ- 
omists great  confusion  has  arisen.  Nearly  all  writers  have 
seen  that  demand  must  have  reference  to  a  certain  article,  be 
it  wheat,  or  potatoes,  or  iron,  or  wool,  or  something  else  in 
particular  ;  that  there  is  no  such  a  thing  as  a  demand  indis- 
criminately for  meat,  potatoes,  iron,  wool,  and  all  other  articles 
in  the  market.  In  the  same  way  it  is  seen  that  the  word  supply 
has  no  significance  unless  some  one  article  is  in  view.  It  has 
not,  however,  been  so  clearly  apprehended  and  strongly  held 
in  mind,  that  demand  and  supply  both  have  reference  to  a 
certain  price. 

126.  Desire  is  not  Demand. — It  has  been  said  that  demand 
means  the  quantity  of  any  seated  article  which  would  be  taken 
at  a  stated  price.       Demand  can  possibly  come  only   from 
those  who  could  give  the  price.     So  we  see  that  desire  is  not 
demand.     As  Mr.  Thornton  says,  there  is  no  demand,  econom- 
ically speaking,  in  the  hungry  eyes  of  a  penniless  boy,  looking 
at  tarts  through  a  pastry-cook's  window.     Without  pennies, 
an  unlimited  longing  and  capacity   for    their    consumption 
would  not  enable  that  boy  to  contribute  aught  to  the  demand 
for  tarts. 

127.  Reduction  of  Supply. — Let  us  illustrate  the  applica- 
tion of  the  terms  demand  and  supply  in  economics. 

We  will  take  the  case  of  an  island  far  out  at  sea,  inhabited 
by  a  population  mainly  engaged  in  fishing  and  agriculture, 
having,  on  one  side,  a  beach  which  is  strewn  with  vast  depos- 
its of  seaweed,  which  has  been  found  to  be  a  very  good  dress- 
ing, or  manure,  for  the  cultivated  fields  of  the  island.  A 
hundred  of  the  islanders  are  accustomed  to  get  out  the 
seaweed,  in  intervals  of  fishing  or  of  cultivating  their  own 
little  properties,  selling  it  to  the  farmers  inland. 

We  may  suppose  that  this  manure  is  found  to  increase  the 
yield  of  the  lands  to  which  it  is  applied  to  such  an  extent  that 


DEMAND   AND    SUPPLY,  89 

there  are  a  thousand  farmers  who  will  each  give  ten  bushels 
of  wheat,  this  year,  for  five  loads  of  seaweed.  There  is,  then, 
a  demand  for  five  thousand  loads  at  the  price  of  two  bushels 
of  wheat  per  load.  Now  the  supply — that  is,  the  amount 
offered,  or  ready  to  be  offered,  at  this  price — may  be  greater 
or  less  than  five  thousand  loads.  It  may  be  that  the  catch  of 
fish  along  the  shore  is  so  abundant  this  season  that  all  those 
who  are  accustomed  to  get  out  the  seaweed  find  they  can  obtain 
more  by  fishing.  There  may,  then,  be  no  supply  whatever,  at 
tliis  price.  And  it  may  happen  that  there  will  be  no  demand 
for  seaweed  at  any  higher  price.  The  farmers  may  be  agreed 
in  believing  that,  what  with  the  labor  of  applying  the  manure, 
and  what  with  the  necessity  for  paying  for  it  months  before 
the  harvest,  seaweed  is  not  worth  to  any  man  more  than  two 
bushels  of  wheat.  In  this  case,  none  of  this  article  will  be 
gathered,  and  the  supply  will  be  nil. 

2d.  It  may  happen  that,  in  spite  of  the  superior  attractions 
of  fishing,  this  season,  a  certain  number  of  those  who  habitu- 
ally gather  the  seaweed  may  continue  to  do  so,  some  because 
of  the  force  of  habit ;  some  because  they  know  that  the  per- 
sons whom  they  have  been  accustomed  to  supply  will  look  to 
them  for  it  ;  some  because  their  boats  and  nets  are  out  of 
repair  ;  some  because  of  sickness  in  their  families,  indisposing 
them  to  go  far  from  home.  So  that  it  may  result  that  a 
thousand  loads  will  be  gathe'red.  This  may  all  be  sold  at  two 
bushels  of  wheat  per  load. 

Those  who  buy  may  be  those  who  have  usually  bought  of 
the  persons  who  now  have  to  sell,  and  this  may  be  the  sole  or 
the  determining  reason  why  the  seaweed  is  sold  to  them,  and 
not  to  others  ;  or  they  may  be  those  whose  farms  lie  nearest  to% 
the  shore,  and  hence  are  first  reached  by  the  carts  laden  with 
the  manure  ;  or  they  may  be  those  who  "  spoke  first "  for  sea- 
weed, early  in  the  season.  Any  one  of  a  number  of  reasons 
may  control  the  selection  of  the  persons  who  shall  receive  the 
thousand  loads,  out  of  the  larger  number  who  formerly  pur- 
chased five  thousand  loads.  And  this,  it  will  be  observed, 
occurs  without  raising  the  price  of  seaweed,  although  the 
amount  gathered  has  been  greatly  reduced. 


90  POLITICAL  ECONOMY. 

3d.  Again,  it  may  happen  that  among  the  f  ormer  purchasers 
of  the  seaweed  will  be  found  a  considerable  number  of 
farmers,  wanting  in  the  aggregate  2500  loads,  who  esteem 
that  article  as  worth  more  to  them,  per  load,  than  two  bushels 
of  wheat  ;  and,  finding  that  it  can  not  be  had  for  the  usual 
price,  these  may  begin  to  offer,  first,  a  quarter  and,  then,  a  half 
bushel  more,  in  order  to  secure  each  the  amount  required  by 
his  own  land. 

Who,  out  of  the  former  class  of  purchasers,  shall  be  so  dis- 
posed, may  be  determined  by  any  one,  or  more,  of  several 
causes.  It  may  be  wont,  it  may  be  fancy,  it  may  be  obsti- 
nacy, or,  it  may  be  that  their  lands  are  of  a  nature  peculiarly 
to  need  such  dressing,  and  to  respond  with  more  than  ordinary 
liberality  to  this  expenditiire  in  their  behalf.  This  demand 
for  seaweed  may  be  found  strong  and  persistent  enough  to  fix 
the  price  at  two  and  a  half  bushels  of  wheat,  per  load  ;  and  at 
this  price  enough  of  the  fishermen  may  be  induced  to  give  up 
their  fishing  ventures  to  procure  the  required  amount  of  2500 
loads. 

128.  Increased  Supply. — We  have  given  three  cases  where 
a  reduction  in  the  supply  of  seaweed  brings  up  the  question 
whether  the  demand  shall  prove  sufficient  to  raise  the  price. 
Let  us  take  successively  a  few  cases  of  an  increase  of  the 
supply  at  the  previously  prevailing  price.  An  unusually  heavy 
storm  bringing  the  seaweed  in  large  masses  far  up  on  the 
shore,  or  the  invention  of  some  new  tool  for  getting  it  out, 
may  enable  each  man  engaged  in  this  business  to  bring  to 
market,  with  the  same  labor,  a  much  greater  amount ;  or  a  bad 
season  for  fishing  may  cause  a  larger  number  of  persons  to 
seek  to  get  a  livelihood  in  this  way.  Ten  thousand  loads  are 
now  produced,  or  are  ready  to  be  produced,  at  two  bushels  of 
wheat  per  load.  This,  then,  is  the  supply  ;  and  it  is  to  be  ob- 
served that  this  is  the  supply  equally  whether  the  ten  thou- 
sand loads  are  actually  dug  or  not,  if  only  those  who  are 
engaged  in  this  business  are  ready  to  bring  to  market  that 
amount  at  that  price.  In  this  situation  one  of  several  things 
may  happen. 

1st.  The  increase  of  supply  may  coincide  with  an  increase 


COMPE  TITION.  9 1 

of  demand,  due  to  the  breaking  up  of  new  lands  for  tillage, 
or  to  the  failure  of  some  other  species  of  soil-dressing  previ- 
ously used  by  many  farmers,  or  to  a  wider  popular  knowledge 
of  the  advantage  of  using  the  seaweed.  This  increase  of  de- 
mand may  be  just  such  as  to  take  off  the  entire  ten  thousand 
loads,  at  the  customary  price. 

2d.  That  result  is,  however,  unlikely.  Even  if  an  increase 
of  demand  should  coincide  with  such  a  large  and  sudden  in- 
crease of  supply,  it  would  be  strange  if  the  coincidence  were 
so  complete  as  to  leave  the  price  just  where  it  was.  If  we  take 
the  more  reasonable  supposition  that  there  is  either  no  increase 
of  demand,  or  an  increase  less  than  the  increase  of  supply, 
shall  we  have,  under  the  conditions  existing,  a  new  price 
resulting  ?  In  strict  theory  this  is  not  necessary.  It  is  con- 
ceivable that,  while  the  producers  of  this  article  stood  ready 
to  deliver  ten  thousand  loads  at  two  bushels  of  wheat  a  load, 
their  interests,  feelings,  and  habits,  with  respect  to  labor  and 
subsistence,  might  be  so  balanced,  that,  rather  than  take  less 
than  the  customary  price,  they  would  allow  the  production  to 
fall  to  five  thousand  loads. 

3d.  But  this,  again,  is  not  probable.  Although,  as  we  shall 
see  later  (par.  145),  there -is  great  power  in  custom  to  fix 
prices,  so  much  so  that  articles  often  keep  the  same  price  for 
years,  in  spite  of  considerable  alterations  in  the  conditions  of 
production,  it  is  not  to  be  expected  that  so  great  a  change  as 
we  have  supposed  to  occur,  would  fail  to  establish  a  new 
price.  The  producers  of  seaweed  being  prepared  to  furnish 
ten  thousand  loads,  and  the  purchasers  being  accustomed  to 
take  only  five  thousand,  it  is  probable  that  the  desire  of  indi- 
vidual producers  to  keep  themselves  fully  employed  at  the 
business  would  induce  Competition  among  the  sellers  of  this 
article. 

129.  What  is  Competition? — This  is  the  most  important 
word  in  the  theory  of  value.  I  have  now  used  it  for  the  first 
time,  though  it  might  have  been  introduced  with  equal  appro- 
priateness, a  moment  ago,  in  describing  the  change  of  price 
from  two  to  two  and  a  half  bushels  per  load. 

Competition    signifies   the    operation    of    individual    self- 


92  POLITICAL  ECONOMY. 

interest,  among  the  buyers  and  the  sellers  of  any  article  in 
any  market.  It  implies  that  each  man  is  acting  for  himself 
solely,  by  himself  solely,  in  exchange,  to  get  the  most  he  can 
from  others,  and  to  give  the  least  he  must  himself. 

1.  The  idea  of  competition  is  opposed  to  combination. 
Wherever,  and  in  whatever  degree,  buyers  or  sellers  act  in 
concert,  whether  by  insisting  upon  a  certain  price,  or  by  regu- 
lating the  amount  to  be  bought  or  sold,  there  competition  is, 
in  so  far,  defeated.  In  competition  every  man  is  supposed  to 
be  active  and  alert  to  slip  in  ahead  of  every  other  man  and 
sell  his  own  product  first,  and  sell  it  at  a  higher  price  if  pos- 
sible. Men  in  this  state  act  as  freely  and  as  independently  as 
the  minute  particles  of  some  fine  dry  powder  absolutely  desti- 
tute of  cohesion.  If  any  two  particles  in  the  economic  mass 
stick  together,  so  that  one  must  move  when,  and  as,  and  be- 
cause, the  other  does,  competition  is  in  so  far  defeated. 

(2)  Competition  is  also  opposed  to  custom.  If  in  any  degree 
one  buys  or  sells  at  a  certain  price,  if  he  buys  or  sells  in  a  cer- 
tain place,  if  he  buys  or  sells  of  or  to  a  certain  person,  because 
he  has  done  so  in  the  past,  he  obeys  the  rule  of  custom.     In 
competition  men  are  assumed  in  every  transaction  to  seek  and 
find  their  best  market,  that  is,  the  place  to  buy  or  to  sell,  in 
which,  at  the  time,  and  under  the  circumstances  existing,  they 
can  get  most  for  what  they  have  to  sell  and  will  give  least  for 
what  they  wish  to  buy. 

(3)  Competition  is  opposed  to  sentiment.     "Whenever  any 
economic  agent  does  or  forbears  any  thing  under  the  influence 
of  any  sentiment  other  than  the  desire  of  giving  the  least  and 
gaining  the  most  he  can  in  exchange,  be  that  sentiment  pat- 
riotism, or  gratitude,  or  charity,  or  vanity,  leading  him  to  do 
any  otherwise  than  as  self  interest  would  prompt,  in  that  case, 
also,  the  rule  of  competition  is  departed  from.     Another  rule 
is  for  the  time  substituted. 

130.  The  Action  of  Competition. — Such  is  competition  in 
the  economic  sense.  Now  let  us  return  to  our  island.  We 
have  said  that,  with  the  producers  of  seaweed  ready  to  get 
out  and  deliver  ten  thousand  loads,  while  formerly  but  five 
thousand  were  used,  it  was  not  likely  that  a  demand  for  the 


DEMAND  AND   SUPPLY.  93 

additional  amount  would  arise  to  carry  off  the  entire  amount, 
at  the  customary  price  of  two  bushels  of  wheat  a  load  ;  and 
that,  consequently,  competition  would  probably  set  in  among 
the  sellers  of  this  article.  Since  there  are  not  buyers  enough 
to  take  off  the  whole  supply,  each  producer  will  try  to  sell  all 
his  own  stock,  no  matter  who  else  does  not ;  and  since  there 
is  reason  to  apprehend  that  the  price  will  sink  below  two 
bushels,  he  will  try  to  sell  as  near  that  figure  as  possible,  and, 
hence,  he  will  sell  as  soon  as  he  can  find  a  purchaser. 

Through  this  force  the  price  will  begin  to  decline.  It  may 
be  by  slow  degrees  ;  it  may  fall  tumultuously.  At  two  bush- 
els of  wheat,  a  load,  demand  and  supply  are  unequal — ten 
thousand  loads  are  offered  *  :  only  five  thousand  are  ready 
to  be  taken.  At  one  bushel  and  three  pecks,  the  supply  will 
perhaps  sink  to  nine  thousand  loads,  since  some  of  the  more 
adventurous  among  the  producers,  the  more  daring  and  skill- 
ful fishermen  among  them,  or  those  having  the  best  gardens 
and  fields  around  their  cottages,  may  decide  that  they  can  do 
better  for  themselves.  Meanwhile,  we  may  suppose  the 
demand  to  rise  to  six  thousand  loads,  so  numerous  are  the 
farmers  who  think  that,  at  that  price,  it  will  pay  them  to  use 
the  dressing  freely  on  their  lands.  At  a  bushel  and  a  half, 
demand  and  supply  still  more  nearly  approach  each  other.  At 
the  new  price,  the  quantity  offered — the  supply — rapidly  falls 
off.  Meanwhile  the  demand  has  increased,  since,  at  a  bushel 
and  a  half  for  a  load  of  manure,  the  net  produce  of  the  fields, 
that  is,  the  amount  of  wheat  remaining  in  the  hands  of  the 
farmer  after  paying  for  the  manure,  may  be  appreciably 
enhanced.  Supply  and  demand  may  now  stand,  respectively, 
at  eight  and  at  seven  thousand  loads. 

Supply  and  demand  remaining  still  sundered,  it  is  neces- 
sary that  there  should  be  a  further  movement  of  price  to 

*  We  have  before  stated  that  the  supply  of  any  article  is  not  necessa- 
rily confined  to  the  stock  in  markets  or  warehouses,  but  embraces  all 
that  producers  stand  ready  to  bring  forward  at  the  price  named,  within 
the  period  over  which  the  demand  extends.  In  the  present  illustration, 
•we  are  assuming  the  producers  to  be  getting  out  the  seaweed  from  day 
to  day. 


94  POLITICAL  ECONOMY. 

bring  them  together.  Whether  that  step  shall  be  a  short  one, 
or  a  long  one  ;  whether  supply  and  demand  shall  be  equal- 
ized at  a  price  much,  or  but  little,  below  a  bushel  and  a  half, 
depends  on  two  things,  first,  the  utility  to  the  farmers  of  the 
soil-dressing,  when  in  excess  of  seven  thousand  loads,  which  we 
may  call  its  Final  Utility  ;  and,  secondly,  the  ability  of  the 
producers  to  do  something  profitable  besides  digging  and 
hauling  seaweed. 

131.  Final  Utility. — This  term  has  been  used,  in  the  fore- 
going illustration,  with  reference  to  the  entire  supply  of  sea- 
weed in  excess  of  seven  thousand  loads,  be  that  excess  one 
hundred,  or  nine  hundred  loads.  Strictly  speaking,  however, 
the  term  should  have  reference  only  to  the  last  appreciable 
quantity  which  the  purchaser  is  ready  to  take  and  which  a 
producer  is  ready  to  supply. 

The  following  is  Prof.  Jevons'  illustration  of  the  difference 
between  the  total  utility  of  any  commodity,  and  the  utility 
belonging  to  a  particular  portion  of  it. 

"  A  pound  of  bread,  per  day,  supplied  to  a  person,  saves 
him  from  starvation,  and  has  the  highest  conceivable  utility. 
A  second  pound,  per  day,  has,  also,  no  slight  utility  ;  it  keeps 
him  in  a  state  of  comparative  plenty,  though  it  be  not  alto- 
gether indispensable.  A  third  pound  would  begin  to  be 
superfluous.  It  is  clear,  then,  that  utility  is  not  proportional 
to  commodity.  The  very  same  articles  vary  in  utility,  according 
as  we  already  possess  more  or  less  of  them." 

This  descending  scale  of  utility  may  be  applied  to  suc- 
cessive quantities  of  seaweed,  for  the  dressing  of  wheat  lands. 
A  farmer  having  a  certain  breadth  of  arable  lands  might 
profitably  give  two  and  a  half  bushels  per  load  for  the  first 
ten  loads,  with  which  to  dress  certain  of  his  fields.  If  no  one 
stood  ready  to  supply  more  of  the  seaweed,  at  a  lower  price, 
two  and  a  half  bushels  would  be  determined  as  the  price  of 
the  article.  Were  he  to  buy  five  other  loads,  he  might  have 
to  apply  them  to  other  fields,  the  return  from  which  would 
not  justify  the  payment  of  more  than  two  and  a  quarter 
bushels,  a  load.  Now,  it  might  be  that  a  producer  stood  ready 
to  deliver  the  additional  quantity  at  that,  but  at  no  lower, 


BUT  ONE  PRICE  FOR  A    COMMODITY.  95 

price  :  if  so,  two  and  a  quarter  bushels  would  measure  the  final 
utility  of  the  manure,  and  this  will  be  its  price. 

Were  the  farmer  to  buy  three  more  loads,  he  might  have 
to  apply  them  to  still  other  fields,  from  which  the  enhanced 
return  would  justify  the  payment  of  two  bushels  a  load,  but 
no  more.  As,  however,  it  takes  two  to  make  a  bargain,  his 
readiness  to  buy  at  this  price  would  not  make  this  the  price 
of  seaweed.  It  is  only  when  a  producer  is  found  ready  to 
deliver  the  commodity  at  the  price,  that  a  new  price  is  determ- 
ined. It  might  even  happen  that  the  farmer  would  be  will- 
ing to  take  two  more  loads,  if  he  could  get  them  for  a  bushel 
and  a  half,  a  load,  and  that  a  producer  would  appear,  willing 
to  deliver  the  article  at  that  price. 

Now,  according  to  the  course  of  our  illustration,  the  farmer 
has  bought  twenty  loads  ;  but  the  utility  of  the  several  parts 
of  that  aggregate  amount  has  varied  widely  ;  the  utility  of 
the  first  part  was  very  great ;  the  utility  of  the  last  part  com- 
paratively small. 

132.  But  One  Price  for  a  Commodity. — We  have  thus  far 
assumed,  for  the  purpose  of  illustrating  the  declining  utility  of 
successive  portions  of  a  commodity,  that  the  farmer  pur- 
chased the  ten,  the  five,  the  three,  and  the  two  loads  of  sea- 
weed at  different  times,  and  at  prices  corresponding  to  the 
gain  in  the  wheat  crop  resulting  to  him  from  the  application 
of  the  manure. 

But  suppose  that  the  farmer  had  purchased  the  twenty 
loads  at  the  same  time,  it  is  evident  he  would  have  paid  one 
price  for  the  whole.  What  would  have  been  that  price  ? 
Would  it  have  been  the  highest  price  paid  for  any  portion  ? 
Clearly  not,  since  we  have  seen  he  could  only  afford  to  put 
the  dressing  upon  certain  of  his  fields,  on  condition  of  getting 
it  at  a  much  lower  price.  Would  it  have  been  at  a  price,  the 
mean  between  the  highest  and  the  lowest  ?  Just  as  little  ; 
for  we  have  seen  that  producers  stood  ready  to  sell  at  one  and 
a  half  bushels  per  load,  which  would  not  have  been  the  case 
had  the  demand  been  sufficient  to  take  off  the  supply  at  a 
higher  rate. 

If,  in  an  open  market,  under  full  competition,  any  portion 


96  POLITICAL  ECONOMY. 

of  a  given  commodity  is  to  be  sold  at  a  certain  price,  then 
will  all  the  portions  of  that  commodity,  sold  at  the  same  time, 
be  sold  at  that  price,  whatever  the  degree  of  utility  which  may 
accompany  each  such  portion.  If  I  buy  a  quantity  of  food 
for  my  own  consumption,  I  do  not  pay  for  that  part  which 
would  suffice  to  keep  me  alive,  a  price  such  as  I  would  pay, 
were  it  necessary,  to  be  saved  from  starving  ;  for  another  part 
of  the  food,  a  price  corresponding  to  the  discomfort  and  dis- 
satisfaction I  should  feel  in  being  insufficiently  nourished  ; 
and,  for  a  third  part  a  price  corresponding  to  the  pleasure  of 
ample  and  generous  sustenance.  I  pay  one  price  for  the  whole, 
the  same  for  every  equal  part.  That  price  measures  the  final 
utility  of  the  food  to  me  :  that  is,  the  utility  of  the  portion  at 
which  I  cease  to  buy,  the  portion  beyond  which  I  would  as 
soon  keep  the  price  in  my  pocket  as  have  more  of  the  food. 

Prof.  Jevons  states  the  case  thus  :  "  When  a  commodity  is 
perfectly  uniform  or  homogeneous  in  quality,  all  portions  may 
be  indifferently  used  in  place  of  equal  portions  ;  hence,  in  the 
same  market,  and  at  the  same  moment,  all  portions  must  be 
exchanged  at  the  same  ratio.  There  can  be  no  reason  why  a 
person  should  treat  exactly  similar  things  differently,  and  the 
slightest  excess  in  what  is  demanded  for  one  over  the  other, 
will  cause  him  to  take  the  latter  instead  of  the  former.  In 
nicely  balanced  exchanges  it  is  a  very  minute  scruple  which 
will  turn  the  scale  and  govern  the  choice.  A  minute 
difference  of  quality  in  a  commodity  may  thus  give  rise  to 
preference,  and  cause  the  ratio  of  exchange  to  differ.  But 
when  no  difference  exists  at  all,  or  when  no  difference  is 
shown  to  exist,  there  can  be  no  ground  for  preference,  what- 
ever." 

133.  What  Constitutes  an  Economic  Difference  ? — In  the 
foregoing  paragraph,  Prof.  Jevons  speaks  of  commodities 
between  which  no  difference  exists.  Of  course  there  are  no 
two  articles  in  the  universe  precisely  identical.  What  Prof. 
Jevons  means  is  that  there  may  exist  no  difference,  as  viewed 
by  the  would-be  purchaser,  with  reference  to  some  use  to  which 
the  two  commodities  may  be  put,  which  use  two  commodities, 
apparently  varying  in  many  respects,  may  indifferently  serve^ 


WHAT  IS  A    MARKET.  97 

And  it  is  to  be  noted  that  the  existence  or  non-existence  of 
an  economic  difference,  will  depend  on  the  quality  of  the 
individual  exchanger,  on  the  purpose  he  has  in  view,  on  the 
scale  of  his  transactions,  and  on  other  causes.  Thus,  a  large 
dealer  in  poultry  may  buy  five  hundred  pairs  of  chickens,  in 
gross,  only  satisfying  himself  by  a  rapid  examination  that 
none  fall  below  a  certain  standard  as  to  size  and  condition. 
His  customers,  however,  will  inspect  the  individual  fowls, 
with  the  greatest  carefulness,  and  will  perhaps  be  determined 
in  their  choice  by  considerations  the  most  minute,  and,  possi- 
bly, whimsical.  In  the  same  way  a  wholesale  lumber  merchant 
may  buy,  in  gross,  a  large  amount  of  stock  at  a  uniform 
price,  and  a  half  dozen  of  his  customers  may  the  next  day  go 
through  his  yards,  each  taking  out,  by  preference,  a  certain 
portion  as  peculiarly  adapted  to  some  job  of  work  he  has  on 
hand. 

The  fact  that  several  commodities  have  a  generic  name  in 
common  does  not  constitute  them  the  same  articles  for  the 
purposes  of  exchange.  Thus,  corn  is  not  sold  in  the  Chicago 
mai'ket  as  com,  but  as  corn  No.  1,  or  corn  No.  2.  Spring  and 
Winter  wheat  never  bring  the  sajne  price  ;  they  are  not  one 
kind  of  commodity,  but  two,  and  a  reason  for  a  preference 
between  them  always  exists. 

The  proposition  we  are  considering  further  requires  to  be 
modified  with  regard  to  the  obstacles  to  exchange,  the  igno- 
rance or  indifference  of  exchangers,  etc.  The  consideration 
of  these  causes,  as  qualifying  the  principle  that  there  can  be 
but  one  price  for  any  commodity,  in  the  same  market,  at  the 
same  time,  will  be  more  conveniently  postponed  to  the  title 
(par.  149)  The  Friction  of  Retail  Trade. 

134.  What  is  a  Market? — Many  definitions  have  been 
given  to  the  word,  market.  As  I  apprehend  it,  the  term,  in 
political  economy,  should  have  reference,  first,  to  a  species  of 
commodity  ;  secondly,  to  a  group  of  exchangers. 

In  this  view,  there  is  no  market  which  is  a  market  indistin- 
guishably  for  all  or  for  several  commodities,  as  for  tea,  iron, 
cotton  and  wheat  ;  but  there  is  a  market  for  each  commodity, 
by  turns,  as  a  market  for  tea,  in  which  tea  is  bought  and  sold  ; 


98  POLITICAL  ECONOMY. 

a  market  for  iron,  in  which  iron  is  bought  and  sold.  Thus, 
there  are  as  many  markets  as  there  are  separate  commodities. 

Secondly,  a  market  embraces  all  those  who  contribute  to 
the  supply  of  or  the  demand  for  a  given  commodity  in  any 
place.  Hence,  all  those  who  are  ready  to  buy  of  or  sell  to 
each  other  belong  to  the  same  market,  no  matter  where  they 
live. 

I  say,  who  are  ready  to  buy  of  or  sell  to  each  other.  It 
does  not  follow  from  this  that  all  who  in  the  same  place  are 
buying  and  selling  the  same  article  belong  to  the  same  market. 
Thus,  suppose  there  are  in  New  York  five  importers  of  tea, 
fifteen  wholesale  dealers  in  that  article,  a  hundred  retailers, 
and  a  half  million  consumers.  All  these  do  not  belong  to  the 
same  market.  The  importers  of  tea  and  the  wholesale  dealers 
constitute  one  tea  market,  the  wholesale  dealers  and  the 
retailers  constitute  another  tea  market  ;  the  retailers  and  the 
domestic  purchasers  constitute  still  another  tea  mai-ket. 
There  are  as  many  markets  as  there  are  groups  of  exchangers. 
In  the  case  supposed,  there  are  three  tea  markets  ;  each  has 
its  own  group  of  buyers  and  sellers  ;  and  in  each  of  the  three, 
at  any  time,  tea  is  sold  at  a  price  different  from  that  at  which 
it  is  sold  in  any  of  the  others.  Thus,  the  price  for  precisely 
the  same  sort  of  tea,  in  the  market  made  up  of  importers  and 
wholesale  dealers,  may  be  $1.00  ;  in  the  market  made  up  of 
wholesale  dealers  and  retailers,  $1.10,  and  in  the  market  made 
up  of  retailers  and  domestic  purchasers,  $1.25. 

Hence  we  see  that,  without  such  a  definition  of  the  word 
market,  it  would  not  do  to  say  that  there  can  at  any  time  in 
any  market  be  but  one  price  for  a  given  commodity.  There 
is  never  a  day,  in  any  great  mart,  when  tea,  iron,  wool,  wheat, 
or  what  not,  is  not  selling  at  several  different  prices,  it 
may  be  in  the  same  street. 

135.  But  while  within  a  great  mart  there  may,  thus,  be 
many  markets,  any  one  of  these  markets  may  extend  far 
beyond  the  limits  of  that  mart.  To  pursue  the  illustration 
already  offered,  the  five  New  York  importers  of  tea  may  sell 
not  to  the  fifteen  wholesale  dealers  of  that  city  only,  but  to 
twenty  other  wholesale  dealers  in  Brooklyn,  Jersey  City,  New- 


WHAT  IS  A    MARKET?  99 

ark  and  other  places  within  a  radius  of  twenty  or  of  fifty 
miles.  A  market  is  thus  constituted  of  the  five  importers  and 
these  thirty-five  wholesale  dealers.  Every  one  of  the  latter 
belongs  as  distinctly  to  that  market  as  that  one  who  lives 
nearest  the  City  Hall,  for  he  contributes  as  truly  to  the 
demand  for  tea  in  that  market.  Again,  this  body  of  whole- 
sale dealers,  thus  re-enforced,  may  sell  not  to  a  hundred  but  to 
a  thousand  retailers  scattered  throughout  all  that  region. 
This  group  of  exchangers  makes  up  the  market,  and  not  the 
fifteen  wholesale  dealers  and  the  one  hundred  retailers  of  the 
city  of  New  York  only.  These  one  thousand  retailers,  again, 
sell,  not  to  half  a  million,  but  to  a  million  and  a  half  of  con- 
sumers of  tea. 

All  persons  whose  demand  for,  or  whose  supply  of,  a  com- 
modity goes  to  make  up  the  aggregate  demand  for  or  supply 
of  that  commodity,  in  any  given  place,  and  hence  to  affect  the 
price  of  that  commodity  in  that  place,  belong  to  the  same 
market. 

136«  But  it  may  be  said  :  this  would  make  the  whole 
world  belong  to  the  same  market,  and  would,  hence,  take  all 
significance  out  of  the  word.  By  no  means.  In  the  market 
which  is  made  up  of  the  five  importers  of  tea,  all  perhaps 
having  warehouses  on  one  wharf  in  New  York,  and  the  thirty- 
five  wholesale  dealers  of  the  surrounding  region  whom  they 
supply,  the  price  of  tea  will  not,  probably,  be  appreciably 
different  from  that  which  is  paid  in  the  market  made  up  of 
the  four  Boston  importers  of  tea  and  the  twenty-five  whole- 
sale dealers  who  buy  of  them.  If,  for  instance,  the  New  York 
price  were  to  be  lower  than  the  Boston  price,  the  New 
York  importers  would  begin  to  offer  their  stock  in  Boston,  to 
get  the  advantage  of  the  higher  price  there  prevailing,  and 
would  hence  contribute  to  the  supply  of  tea  there,  and  hence 
would  come,  so  far  forth,  and  for  the  time,  to  belong  to  that 
mai'ket. 

But,  in  the  market  constituted  of  the  wholesale  dealers  and 
the  retailers  of  tea  in  and  around  New  York,  the  price  of  tea 
may  be  one  or  two  cents  lower  than  in  the  corresponding 
market  around  Boston,  without  any  of  the  New  York  whole- 


100  POLITICAL   ECONOMY. 

sale  dealers  sending  their  stocks  to  New  England,  or  any  of 
the  New  England  retailers  coming  to  New  York  to  take 
advantage  of  the  lower  price. 

In  the  market  constituted  of  the  retailers  and  the  domestic 
purchasers  of  tea,  far  wider  differences  may  exist.  The  price 
of  the  same  quality  of  tea  might  be,  and  might  long  remain, 
n've  or  ten  cents  higher  in  the  grocery  stores  of  Newark  than 
in  those  of  Worcester  or  Nashua,  without  a  single  New 
England  grocer  going  to  Newark  to  retail  his  tea,  or  a  single 
Newark  householder  going  to  Worcester  or  Nashua  to  lay  in 
his  year's  supply. 

I  repeat  my  proposition  :  all  those  persons  who  contribute 
to  the  general  demand  for  any  commodity,  as  felt  in  any 
place,  or  to  the  supply  of  that  commodity  there  available  for 
purchase,  and  who,  hence,  serve,  as  buyers  or  as  sellers,  to  affect 
the  price  of  that  commodity  in  that  place  belong  to  the  same 
market. 

137.  Normal  Price. — If  there  were  a  good  market  for  any 
given  commodity,  i.  e.,  if  competition  were  perfect ;  (1)  if  there 
were  no  large  stock  of  that  commodity,  but  it  could  be  pro- 
duced freely  and  equably  throughout  the  year,  as  wanted  ;  (2) 
if  the  demand  for  it  were  uniform  and  strong,  about  the  same 
quantity  being  required  for  use  in  every  equal  period  of  time  ; 
(3)  if  no  large  "  plant,"  or  machinery,  or  great  amount  of 
capital  in  other  forms,  were  required  for  its  production  ;  (4) 
if  the  producers  of  that  commodity  had  an  easy  resort,  or 
economic  escape,  to  occupations  in  which  other  commodities 
were  produced,  and  if,  in  turn,  producers  in  other  occupations 
could  readily  and  successfully  take  up  the  production  of  the 
commodity  in  question,  then  the  price  of  that  commodity 
would,  at  any  time,  be  close  to  the  cost  of  production.  J3y 
cost  of  production  we  are  to  understand,  not  the  average  cost  of 
the  whole  supply,  but  the  cost  of  that  part  which  is  produced 
at  the  greatest  disadvantage. 

That  price  would  express  the  Final  Utility  of  the  commodity 
in  question,  that  is,  the  utility  of  the  portion  which,  at  the 
price,  it  was  just  worth  the  consumer's  while  to  purchase. 
That  price  would  also  express  the  sum  of  the  efforts  and 


MARKET  VS.  NORMAL   PRICE.  IOI 

abstinences  of  those  producers  who  brought  forth  this  com- 
modity under  the  least  favorable  conditions,  of  all  who 
contributed  to  the  supply.  Inasmuch  as  this  price  is  to  be  paid 
alike  by  all  purchasers  of  this  commodity,  it  follows  that 
those  who  have  produced  it  under  more  favorable  conditions* 
will  obtain  a  remuneration  which  will  represent  more  than  the 
sum  of  their  individual  efforts  and  abstinences. 

A  price  which  corresponds  closely  to  the  cost  of  production 
may  be  called  Normal  Price. 

138.  Market  Price. — Inasmuch  as  the  conditions  recited  in 
the  foregoing  paragraph  are  never  fully  realized,  there  is  for 
every  commodity,  in  every  market,  a  Market  Price  which  differs 
more  or  less  widely  from  the  normal  price. 

This  market  price  always  measures  the  Final  Utility  of  the 
commodity,  that  is,  the  utility  of  it  to  the  last  purchaser  to  whom 
it  is  just  worth  while  to  buy  of  it,  at  that  price.  Otherwise,  that 
person  would  either  not  buy,  which,  by  leaving  a  portion  of 
the  supply  untaken,  would  determine  a  new  and  lower  price, 
at  which  he  or  some  one  else  would  buy  ;  or,  he  or  some  one 
else  would  buy  more  of  it,  which,  b'y  adding  to  the  demand, 
would  determine  a  new  and  higher  price. 

But  while  market  price  must  always  measure  the  utility  of 
the  commodity  to  the  last  purchaser,  that  is,  the  person  to 
whom  it  is  just  worth  while  to  buy  at  that  price,  market  price 
does  not  always  measure  the  efforts  and  abstinences  of  the  last 
producer,  that  is,  the  person  producing  under  the  greatest  dis- 
advantage :  to  whom,  therefore,  it  is  only  just  worth  while  to 
produce  at  that  price.  It  is  in  this  latter  respect  that  market 
price  differs  from  normal  price. 

139.  .Relation   of  Market  Price   to   Normal  Price. 

The  causes  which  make  market  price  differ  from  normal 

price  are  various.  The  illustration  of  them  might  be  extended 
indefinitely.  They  may  be  grouped  as  follows  : 

I.  The  existence  of  a  stock.  For  the  purpose  of  exhibiting 
in  its  simplest  form  the  operation  of  supply  and  demand,. 

*When  we  reach  the  department  of  Distribution,  Part  IV,  we  shall 
give  the  generic  name  of  Rent  to  this  excess  of  price  over  cost  of  pro- 
duction. 


102  POLITICAL  ECONOMY. 

I  took  an  article  of  which,  it  was  assumed,  no  considerable 
stock  existed  at  any  time.  The  seaweed  was  supposed  to  lie 
in  vast  deposits  on  the  shore,  and  to  be  got  out  (produced)  as 
required.  This  is  a  condition  which  tends  to  keep  market  price 
close  to  normal  price.  In  the  case  of  most  commodities,  how- 
ever, a  considerable  stock  always  exists  :  a  fact  which  pro- 
foundly influences  market  price. 

The  existence  of  a  stock  is  determined  by  various  causes. 
In  order  that  there  may  be  grain  to  form  the  food  of  the  long 
winter  and  early  spring,  seed  must  have  been  sown  and  the 
growing  crop  cultivated  months  previous.  In  order  that  there 
shall  be  a  supply  of  wool  in  the  market,  sheep  must  have  been 
bred  years  before.  Many  commodities  make  no  such  require- 
ment. In  order  that  there  may  be  grain,  the  processes  of 
production  must  have  been  begun  months  back  ;  but,  given 
grain,  it  is  only  necessary,  in  order  to  have  bread,  that  the 
miller  should  have  a  day's  notice,  and  the  baker  time  to  heat 
his  oven.  Hence,  with  an  immense  stock  of  grain,  amounting 
to  thousands  of  millions  of  bushels,  there  may  be  but  a  small 
stock  of  flour,  of  which  only  a  minute  fraction  will,  at  any 
time,  be  in  the  form  of  bread. 

140.    Distinction  between  Stock  and   the   Supply. — 
The  stock  of  any  article  in  existence,  at  any  time,  must  not  be 
confounded  with  the  supply  of  that  article,  considered  as  a 
commodity  in  the  market. 

By  the  word  supply,  we  express  the  quantity  of  a  commodity 
offered  at  any  given  price.  At  one  price  the  supply  may  be 
but  a  small  fraction  of  the  stock.  At  successively  higher 
prices,  larger  and  larger  portions  of  the  stock  would  be  offered, 
that  is,  would  come  to  constitute  the  supply  —  until  a  certain 
price  would  take  off  the  entire  stock. 

Indeed,  the  supply  may  even  become  greater  than  the 
stock,  under  a  highly  speculative  organization  of  trade.  Thus, 
in  the  grain  or  cotton  market,  or  in  the  market  for  railway 
shares  or  government  bonds,  brokers  daily  offer  to  sell  and 
-contract  to  deliver  vast  amounts  of  the  several  commodities 
in  which  they  deal,  of  which,  perhaps,  they  possess  little  or 
none  at  all. 


MARKET  VS.   NORMAL  PRICE.  103 

Sometimes  it  Lappens  that  those  who  are  offering  such  com- 
modities are  entrapped*  by  a  combination  of  purchasers  into 
contracts  to  deliver,  on  a  certain  day,  more  than  the  entire 
quantity  within  reach,  or  even  in  existence.  In  such  a  case, 
the  supply  is  still  the  amount  offered  at  the  price.  This  it  is, 
and  not  the  stock,  which,  taken  in  connection  with  the  demand 
for  the  commodity,  determines  the  price. 

141.  The  necessity  in  some  cases,  the  usage  in  others,  of 
meeting  the  demand  from  a  stock,  and  not  out  of  daily  pro- 
duction, causes  market  price  to  diverge  from  normal  price, 
through  excess  or  deficiency  of  production. 

In  order  that  there  may  be  wheat,  three  millions  of  persons, 
more  or  fewer,  in  the  United  States,  plant  the  grain  many 
months  previous  to  the  anticipated  consumption  of  the  wheat 
by  the  miller  and  the  baker.  These  persons  break  up  the  land 
and  sow  the  seed  without  mutual  understanding  as  to  the 
extent  of  their  operations.  Each  is  governed  by  a  notion, 
more  or  less  vague,  as  to  the  probable  demand  for  wheat.  It 
is  not  at  all  a  matter  of  certainty  that  the  mistakes  in  calcula- 
tion of  one  farmer  will  offset  those  of  another.  On  the  contrary, 
there  is  a  strong  tendency  in  the  errors  of  producers  to 
accumulate  all  on  one  or  on  the  other  side  of  the  line  of  equable 
production. 

If  the  price  of  wheat,  owing  to  a  deficient  supply,  has  been 
high,  almost  all  producers  will  be  found,  the  next  year,  largely 
planting  wheat.  This  is  likely  to  produce  a  surplus  which 
will  perhaps  bring  down  the  price  below  the  average,  where- 
upon farmers,  with  almost  as  much  unanimity  as  in  the  former 
case,  will,  the  next  year,  diminish  their  operations  in  this 
direction.  Those  who  are  sagacious  enough  to  look  about 
them  and  say  :  Others  are  planting  wheat  freely,  therefore,  I 
will  plant  something  besides  wheat,  are  exceptional.  In  pro- 
ductive industry  it  is  the  rule  that  men  go  in  droves  ;  act 
under  common  impulses,  with  the  result  of  causing  excess  and 
deficiency  to  alternate  with  great  rapidity  and  often  great 
violence.  And  this  holds  good,  not  alone  of  persons  in  the 

*  This  is  called  a  "  corner." 


104  POLITICAL  ECONOMY. 

lower  departments  of  production.  It  is  almost  equally  true 
of  merchants  and  manufacturers  and  bankers.  The  select  few 
who  have  the  coolness  and  the  sense  to  buy  when  others  are 
most  eager  to  sell,  and  to  sell  when  others  are  most  eager  to 
buy,  reap  rich  harvests  of  gain. 

142.  Substitution  of  one  Commodity  for  Another  in  Use. 
— The  influence  upon  price  of  an  excess  or  deficiency  in  the 

stock  of  a  commodity  may  be  greatly  diminished  through  the 
tendency  to  substitute  one  article  for  another  in  use.  Thus, 
the  cereals  are,  to  a  great  extent,  substituted  for  each  other 
in  use  ;  one  kind  of  meat  for  another,*  and  even  bread  for 
meat,  or  meat  for  bread,  in  the  case  of  a  marked  deficiency  of 
one  or  the  other.  If  the  crop  of  wheat  be  short,  maize,  bar. 
ley,  rye,  buckwheat  and  oats  are  increasingly  made  use  of  as 
food  ;  with  a  short  crop  of  all  the  grains,  resort  is  had  to  the 
cheaper  kinds  of  animal  food.  The  result  of  such  substitu- 
tion is  to  raise  the  price  of  the  substituted  article,  and  to  pre- 
vent the  price  of  the  article  for  which  it  is  substitizted  from 
rising  as  high  as  it  otherwise  would.  The  two  commodities 
are  thus,  for  the  time,  and  in  a  degree,  joined  together  in 
price.  A  mutual  dependency  is  established  between  them. 

143.  Liability  to   Deterioration. — The    influence    upon 
market  price  of  an  excess  in  the  stock  of  any  commodity  is 
greatly  controlled  by  its  liability,  or  non-liability,  to  deterior- 
ation.    In  the  case  of  some  commodities,  the   variations  in 
price  due  to  this  liability  are  such  as  to  make  it  appear  that 
price  has  cut  itself  wholly  clear  from  cost  of  production,  or 
cost  of  reproduction.     A  commodity  exceptionally  subject  to 
this  condition  may  lose  ten,  thirty,  fifty,  or  seventy  per  cent, 
of  its  price  in  a  few  days,  or  even  in  a  few  hours.     Thus,  in 
fish  markets,  the  price  of  a  fish  might  have  been  a  shilling 
when  the  market  opened  at  5  o'clock  in  the  morning,  eight- 
pence  at  10  o'clock,  sixpence  by  noon,  while  at  three  or  four 

*  "  We  must,  in  fact,  treat  beef  and  mutton  as  one  commodity  of  two 
different  strengths,  just  as  gold  at  eighteen  carats  and  twenty  carats  is 
hardly  considered  as  two,  but  as  one  commodity,  of  which  twenty  parts 
•  of  one  are  equivalent  to  eighteen  of  the  other."— Jevons — "The  Equiva- 
lence of  Commodities." 


CUSTOMARY  PRICE.  105 

o'clock  in  the  afternoon  one  could  have  it  on  his  own  terms. 
In  the  same  way,  strawberries  are  often  sold  on  Saturday 
night  at  one-half  or  one-third  the  price  of  the  morning. 

The  necessity  of  storage,  in  the  case  of  a  postponed  sale, 
has  often  the  same  influence  on  the  price  of  a  commodity  as 
liability  to  deterioration.  The  dealer,  not  having  facilities  for 
storing  his  stock,  may  be  disposed  to  let  it  go  at  a  very  low 
price. 

144.  II.— Organization  of  Industryand  Existence  of  Plant. 
— A  second  cause  which  makes  market  price  differ  from  normal 
price  is  found  in  the  organization  of  industry  and  the  exist- 
ence of  machinery  and  "  plant."*     It  was  to  get  rid  of  this 
cause  that,  in  our  extended  illustration  of  the  influence  of  sup- 
ply and  demand  upon  price,  we  took  a  simple  "  extractive " 
industry,   the  gathering  of  seaweed  along  the  shore,  which 
could  not  be  supposed  to  involve  the  use  of  numerous  or  ex- 
pensive instruments,  or  the  exercise  of  much  skill,  and  that 
we  assumed  the  persons  so  engaged  to  be  in  a  position  readily 
to  turn  themselves  to  tillage  or  the  fisheries,  in  case  of  a  fall- 
ing off  in  the  demand  for  seaweed. 

145.  III. — Customary  Price. — Another  cause  which  makes 
market  differ  from  normal  price,  is  the  force  of  custom.     We 
owe  the  existence  of  a  customary  price,  in  some  things,  to  the 
power  of  public  opinion,  which  determines  that  there  shall  be 
a  stated,   well-known  price   for  certain  services  and  certain 
commodities  ;   and,  in  other   things,  to  habit  or  the  mental 
inertia  of  purchasers.     Thus,  in  the  former  case,  public  opinion 
would  not  tolerate  varying  and  uncertain  prices  of  admission 
to  places  of  public  amusement,  varying  and  uncertain  tolls 
over  bridges  or  fares  on  public  conveyances,  varying  and  un- 
certain fees  for  the  performance  of  necessary  services,  such  as 
those  connected  with  physical  comfort,  the  preservation  of 
life,  or  the  burial  of  the  dead.     It  is  seen  and  felt  that  to  leave 
the  buyer  to  haggle  and  bargain  at  the  door  of  a  theater  over 
the  price  of  admission  ;  on  the  brink  of  a  river  as  to  the  sum 

*  "  Prices  are  liable  to  great  fluctuations  in  trades  in  which  there  is  a 
great  use  of  fixed  capital." — Marshall — "  Economics  of  Industry." 


106  POLITICAL  ECONOMY. 

to  be  paid  for  a  cast  across  the  stream  ;  in  the  sick  room, 
about  the  fee  for  a  prescription  or  the  medicine  that  is  to  save 
life  or  relieve  pain,  would  be  indecent,  intolerable. 

Hence,  public  opinion  prevails  to  establish  a  price  on  all 
such  occasions,  which  is  alike  irrespective  of  the  actual  service 
rendered  in  the  individual  instance,  and  of  the  cost  of  render- 
ing that  service.  The  rule  of  final  utility  is  here  suspended 
or  altogether  abolished.  The  traveler  might  be  willing  to 
give  a  large  sum,  rather  than  pass  the  night  in  a  storm,  with- 
out shelter,  on  the  bank  of  a  river,  but  he  gets  a  cast  across 
for  the  customary  price.  The  father  would  give  all  his  for- 
tune, were  it  needed,  for  the  prescription  to  save  his  child's 
life,  or  the  medicine  which  the  prescription  calls  for  ;  but,  in- 
stead, under  the  rule  of  customary  price,  he  pays  the  physician 
two  dollars,  or  a  guinea,  as  the  case  may  be,  and,  at  the 
apothecary's,  pays  for  the  medicine  by  the  ounce,  in  silver, 
though  he  would  pay  for  it,  drop  for  drop,  in  his  own  blood, 
could  it  not  be  had  otherwise. 

Where  public  opinion  can  not  be  trusted  to  establish  a  cus- 
tomary price,  in  cases  like  the  above,  the  law  generally  enters 
and  fixes  the  rates  at  which  commodities  and  services  shall  be 
sold.  Of  course,  the  prices  paid  must  be  sufficient  to  make  it 
worth  while  to  keep  up  the  service,  whether  of  the  apothecary, 
the  physician,  the  ferryman,  or  the  actor  or  opera  singer  ; 
but  the  price  to  be  paid  is  made  independent  of  the  wealth  or 
poverty,  the  knowledge  or  ignorance,  the  little  or  the  great 
need,  of  the  individuals  purchasing. 

146.  Influence  of  Habit  on  Price. — Far  beyond  the  range 
of  customary  price,  in  the  limited  class  of  cases  above  referred 
to,  is  the  effect  of  habit  and  mental  inertia,  in  restraining,  or 
wholly  repressing,  the  movements  of  price.  In  the  former 
class  of  cases,  the  seller  consciously  submits  to  a  restraint 
upon  his  freedom  of  action  imposed  from  without,  viz.,  by 
public  opinion  or  law.  In  the  far  wider  field  now  in  contem- 
plation, buyers  and  sellers  are  left  free,  so  far  as  outside 
influence  is  concerned,  but  are  constrained,  in  a  higher  or 
lower  degree,  by  the  laws  of  their  mental  constitution.  No 
human  being  ever  escapes  from  the  force  of  habit.  It  is 


DEMAND  AND  SUPPLY.  107 

always  easier  to  do  what  we  have  done  before  than  to  do  what 
we  have  never  done  ;  to  do  what  we  have  done  twice  than 
what  we  have  done  but  once  ;  to  do  what  we  have  done  often 
than  what  we  have  done  seldom. 

The  degrees  in  which  men  are  thus  bound  by  habit  differ 
widely.  A  capability  of  taking  the  initiative  in  action,  mental 
courage  and  activity,  freedom  from  fear  and  superstition,  a 
readiness  to  meet  new  conditions  and  perhaps  even  a  pleasure 
in  encountering  risks  and  odds,  are  among  the  fruits  of  culture; 
they  constitute  an  inheritance  in  families  ;  they  even  become 
a  characteristic  of  nations  and  races. 

The  effects  of  habit  upon  prices  are  important.  Habit 
always  in  some  degree,  often  in  a  great  degree,  resists  the 
economic  tendency  to  a  new  price.  The  effect  is  seen  at  its 
maximum  in  wages,  the  price  of  labor.  A  day's  wages  often 
remain  the  same  through  years.  So  strong  is  this  tendency 
that  wages  sometimes  remain  unaffected  by  the  presence  of  a 
number  of  unemployed  laborers.  Instead  of  wages  falling  until 
all  the  laborers  are  brought  into  service  at  the  reduced  rates, 
employers  continue  to  pay  the  old  rates  to  a  smaller  number 
of  workmen. 

Over  the  price  of  goods  habit  exerts  an  influence  not  less  real, 
though  not  equally  powerful.  It  often  suffices  to  keep  price 
stable  against  an  economic  reason  for  movement,  and  even 
when  movement  takes  place,  it  begins  later  and  ceases  earlier, 
by  reason  of  this  constant  resistance. 

147.  The  Moral  and  Intellectual  Elements  of  Demand 
and  Supply. — Our  definitions  of  demand  and  supply,  as  re- 
spectively the  quantity  of  any  given  article  which  purchasers 
stand  ready  to  take  at  a  certain  price,  and  the  quantity  which 
producers  or  holders  stand  ready  to  deliver  at  the  same  price, 
clearly  recognize  a  moral  and  an  intellectual  element  alike  in 
demand  and  in  supply.  "  Stand  ready  "  to  take  or  to  deliver. 
Any  thing  which  affects  that~readiness,  is,  then,  an  element  of 
demand  or  of  supply.  Supply  is  not  a  stock  (Par.  140),  a 
definite  quantity,  which  must  be  sold,  whether  or  no.  It  may 
be  that  out  of  a  large  stock,  holders  stand  ready  to  deliver  but 
a  small  quantity  at  the  price  offered. 


io8  POLITICAL  ECONOMY. 

The  reason  for  withholding  the  stock  may  be  found  in  the 
physical  conditions  attending  the  reproduction  of  the  article, 
e.  g.,  a  scarcity  of  the  material  out  of  which  it  is  made,  or  the 
reason  may  be  found  in  an  intellectual  apprehension,  just  or 
mistaken,  of  the  state  of  the  market,  or  the  probabilities  of  the 
immediate  future  ;  or,  waving  this  consideration,  the  reason 
for  a  larger  or  a  smaller  quantity  being  offered  or  taken  at  a 
certain  price  may  be  moral,  that  is,  may  be  found  in  the 
greater  or  less  tenacity  of  purpose,  or  the  greater  or  less 
courage  to  undertake  risks  and  sustain  arduous  and  doubtful 
enterprises. 

In  all  variations  between  normal  and  market  price,  moral 
and  intellectual  elements  are  important  factors.  It  often  hap- 
pens that  the  producers  or  holders  of  an  article,  anticipating 
a  rise  of  price,  on  some  account  which  may  prove  to  be  wholly 
fictitious,  will  keep  back  the  entire  stock,  only  to  sell  it,  a  little 
later,  at  a  price  far  below  that  which  they  could  have  obtained 
for  it  while  the  false  apprehension  lasted. 

More  or  less,  false  apprehensions  enter  to  affect  the  demand 
for  and  the  supply  of  every  article  in  every  condition  of  the 
market  ;  but  the  influence  of  this  cause  may  be  in  one  period 
ten  times  or  a  hundred  times  as  great  as  in  other  periods. 
The  contrast  between  a  placid  noonday  and  a  "  hurricane 
eclipse  of  the  sun,"  is  hardly  more  marked  than  the  contrast 
between  a  peaceful,  sluggish  market  and  one  excited  by  mys- 
terious rumors,  emanating  no  one  knows  where,  or  wrought  to 
frenzy  by  false  reports  manufactured  by  the  parties  to  some 
great  jobbing  interest. 

148.  Retail  Contrasted  with  Wholesale  Trade.— The  fore- 
going holds  good  even  of  the  wholesale  markets,  where  the 
parties  who  buy  and  sell  commodities  are  picked  and  skilled 
men,  long  familiar  with  the  conditions  of  the  articles  in  which 
they  deal,  with  large  opportunities,  whether  by  price-currents, 
newspaper,  post  or  telegraph,  or  by  special  and  secret  inquiry, 
for  ascertaining  all  the  facts  bearing  on  the  question,  at  what 
price  they  should  buy  or  sell. 

In  retail  trade,  the  moral  and  intellectual  elements  of  de- 
mand and  supply  play  a  much  more  important  part.  On  one 


RETAIL    TRADE.  109 

side  is  the  merchant,  who  by  frequent  resort  to  the  wholesale 
dealer  is  kept  advised  of  the  conditions  of  the  market.  On 
the  other  side  is  the  "  customer,"  a  creature  of  custom,  as  the 
term  implies  ;  often  ignorant  in  the  widest  sense  of  the  word, 
unintelligent  and  untrained  ;  always  and  necessarily  ignorant 
in  the  special  sense  of  being  unacquainted  with  the  conditions 
which  should  determine  price,  not  knowing  what  a  commodity 
ought  to  cost,  and,  in  the  case  of  many  classes  of  commodi- 
ties, unable  to  judge  of  the  quality  of  the  goods  offered,  per- 
haps at  the  mercy  of  the  dealer  in  the  matter  of  the  measure 
or  weight. 

The  merchant,  again,  is  the  possessor  of  capital,  and  can 
wait  to  dispose  of  his  goods  at  the  best  time.  The  customer, 
on  the  other  hand,  is  generally  in  urgent  need  of  commodities 
for  immediate  use,  and  frequently  poor,  so  that  he  must  buy 
in  small  quantities  ;  perhaps  even,  in  debt,  so  that  he  feels 
under  a  strong  constraint  to  trade  only^with  his  creditor,  who 
thus  holds  him  at  a  double  disadvantage,  for  how  can  he  quar- 
rel, as  to  quality,  measure,  or  price,  with  the  man  whom  he  is 
not  able  to  pay  for  goods  already  had  and  consumed  ? 

149.  The  Friction  of  Retail  Trade. — From  the  ignorance 
and  inertness  of  the  "  customer  "  arises  what  may  be  called 
the  Friction  of  Retail  Trade.  "  Retail  price,"  says  Mr.  Mill, 
"  the  price  paid  by  the  actual  consumer,  seems  to  feel  slowly 
and  imperfectly  the  effect  of  competition,  and  where  compe- 
tition does  exist,  it  often,  instead  of  lowering  prices,  merely 
divides  the  gain  among  a  greater  number  of  dealers.  It  is 
only  in  the  great  centers  of  business  that  retail  transactions 
have  been  chiefly  or  even  much  determined  by  competition. 
Elsewhere  it  rather  acts,  when  it  acts  at  all,  as  an  occasional 
disturbing  influence.  The  habitual  regulator  is  custom,  modi- 
fied from  time  to  time,  by  notions  existing  in  the  minds  of 
purchasers  and  sellers,  of  some  kind  of  equity  or  justice." 

And  referring  to  this  manifest  inability  of  the  customer  in 
retail  trade  to  look  out  for  himself,  in  a  struggle  with  the 
expert  dealer,  Prof.  Cairnes  says  :  "  Between  persons  so  quali- 
fied the  game  of  exchange,  if  the  rules  be  rigorously  enforced, 
is  not  a  fair  one  ;  and  it  has  consequently  been  recognized 


no  POLITICAL  ECONOMY. 

universally  in  England,  and  very  extensively  among  the  bet- 
ter class  of  retail  dealers  in  Continental  countries,  as  a  princi- 
ple of  commercial  morality,  that  the  dealer  should  not  demand 
from  his  customer  a  higher  price  for  his  commodity  than  the 
lowest  he  is  prepared  to  take.  Retail  buying  and  selling  is- 
thus  made  to  rest  upon  a  moral  rather  than  an  economical 
basis,  and,  there  can  be  no  doubt,  for  the  advantage  of  all 
concerned." 

150.  Economic  Forces  Never  Cease  to  Operate. — I  am 
disposed  to  think  that  these  eminent  economists  overrate  the 
disability  under  which  the  customer  suffers  in  retail  trade  ;. 
and,  secondly,  that  the  inference  they  draw  from  the  un- 
doubted fact  of  the  general  prevalence  of  a  customary  price, 
viz.,  that  this  shows  that  competition  is  not  the  regulator  of 
such  trade,  is  not  fully  justified.  To  take  an  analogous  case,, 
let  one  look  around  him,  in  any  highly  organized  community, 
and  he  will  see  very  little  display  of  force  in  compelling 
proper  things  to  be  done,  or  in  repressing  acts  injurious  to 
society.  He  will  see  on  every  side  men  doing  just  and  decent 
and  even  courteous  and  kindly  things,  respecting  the  right."  of 
others  and  making  use  inoffensively  of  their  own  powers  and 
privileges,  just  as  if  all  this  were  natural  and  pleasant  to 
them,  as,  indeed  it  has,  to  a  great  degree,  become.  These 
actions  appear  to  be  spontaneous  and  instinctive  ;  and  one 
thus  looking  around  on  the  orderly  and  civil  procedure  of 
daily  life,  whether  in  social  intercourse  or  in  business,  might 
think  that  force  was  not,  in  any  proper  sense,  the  regulator 
of  that  community  ;  he  might  conclude  that  good  will  towards 
others,  self-respect  and  public  spirit  were  universal.  Yet  if 
that  power  which  in  every  civilized  state  is  always  at  hand, 
however  veiled  or  disguised,  to  protect  person  and  property, 
to  repress  lawlessness  and  to  punish  crime,  were  once  with- 
drawn, society  would  speedily  be  transformed,  and  the  occur- 
rence of  every  form  of  rapine  and  violence  would  instruct  the 
observer  that,  behind  the  fairest  show  of  order,  right  dealing- 
and  courtesy,  stands  the  armed  force  of  the  community. 

So,  while  within  certain  limits,  competition  seems  to  disap- 
pear wholly  from  retail  trade,  and  custom  and  respect  for  the- 


INTERNATIONAL    EXCHANGES.  m 

rights  of  the  purchaser  enter  to  banish  "  higgling  "  from  the 
market  and  to  impose  the  one-price  system,  and  thus  retail 
buying  and  selling,  as  Prof.  Cairnes  says,  comes  to  rest  upon 
a  moral  basis,  yet  the  economic  forces  always  lie  beneath,  as 
the  bed-rock  below  which  the  effects  of  moral  forces  can  not 
go.  Let  the  cost  of  an  article  rise  above  the  customary  price, 
and  merchants  will  make  an  advance  upon  that  price,  in  spite 
of  custom.  Let  merchants  demand  an  utterly  exorbitant 
price,  and  competition  will  spring  up,  even  among  the  least 
intelligent  and  least  enterprising  buyers. 


CHAPTER  H. 

THE   THEORY    OF   INTERNATIONAL    EXCHANGES. 

151.  "We  stated,  in  paragraph  119,  that,  on  the  whole  and 
in  the  long  run,  the  respective  values  of  a  number  of  articles 
will  be  nearly  according  to  the  amounts  of  labor  that  have 
been  expended  upon  them,  severally.     That  this  will  be  true 
throughout  any  small  community  is  seen  in  the  consideration 
that,  if  certain  articles  failed  to  have  as  much,  or  nearly  as 
much,  value  for  the  unit  of  labor  as  other  articles  produced  in 
that  community,  some  of  the  laborers  who  had  been  engaged 
in  the  production  of  the  articles  thus  disparaged  in  exchange, 
would  set  themselves  to  making  some  other  article  or  articles 
more  highly  appreciated.     Either  this  would,  at  some  stage, 
raise  the  value  of  the  disparaged  articles,  through  reducing 
the  supply  of  them  ;  or,  if  the  community  cared  so  little  for 
those  articles  as  not  to  be  willing  to  pay  a  higher  price  for 
them,  production  in  those  lines  would  ultimately  cease. 

Subject  to  important  exceptions — such  as  will  be  indicated 
in  paragraphs  339-342 — the  respective  values  of  articles  will 
be  regulated  in  the  way  that  has  been  indicated,  within  any 
small  community.  Is  any  modification  of  this  conclusion 
required,  as  exchange  is  conceived  to  be  carried  on  between 
distant  communities,  constituting,  perhaps,  distinct  nations  ? 

152.  We  shall  reach  the  essence  of  the  matter  if  we  assume 


112  POLITICAL  ECONOMY. 

the  trading  world  to  be  confined  to  half  a  dozen  islands,  which 
interchange  their  products  freely,  but  between  which  no  move- 
ment of  labor  or  capital  ever  takes  place.  One  of  these  might 
have  a  tropical  climate  and  rich  soil,  producing  in  abundance 
tea  and  coffee,  tobacco,  sugar  and  molasses,  silks,  spices  and 
dye-stuffs.  The  population  of  this  island  we  will  assume  to 
be  in  excess,  the  point  of  diminishing  returns  (par.  51)  having 
long  since  been  passed.  Island  No.  2  is  like  island  No.  1, 
except  that  the  point  of  diminishing  returns  has  not  yet  been 
reached.  Island  No.  3  lies  in  some  northern  sea,  producing 
hemp,  wool,  flax,  and  the  cereal  grains.  Island  No.  4  is  the 
land  of  oil  and  wine.  Island  No.  5  is  filled  with  extensive 
mines  of  coal  and  the  useful  metals.  Island  No.  6  has  a  poor 
soil,  a  bleak  climate,  and  a  scanty  population,  whose  produc- 
tion comprises  only  ice,  lumber,  fish  and  furs. 

What,  now,  will  be  "  the  exchanging  proportions  "  or  terms 
of  exchange,  between  these  islands,  at  any  given  date  ?  Will 
it  still  be  true  that  the  values  of  their  respective  products  will 
be  nearly  according  to  the  amounts  of  labor  (omitting  capital, 
for  the  time,  from  consideration)  which  have  been  involved  in 
their  production,  severally  ?  I  answer,  that,  at  any  date 
which  we  may  take  for  the  purpose  of  our  illustration,  this 
would  not  necessarily  be  so.  Assuming  the  strength,  skill, 
intelligence  and  energy  of  all  the  laborers  in  all  the  islands  to 
be  equal,  a  given  amount  of  labor  in  one  island  might  com- 
mand the  product  of  two  days'  labor  in  another  island,  while 
commanding  the  products  of  only  half  a  day's  labor  in  still 
another.  This  supposition  is  not  an  unreasonable  one.  Dif- 
ferences as  great  exist  to-day  among  the  countries  of  the 
world,  even  after  making  the  allowances  necessary  to  bring 
the  several  laboring  populations  to  an  equality  in  the  respects 
of  strength,  skill,  intelligence  and  energy. 

153.  What,  then,  would  govern  the  exchanging  proportions 
subsisting  between  the  several  islands  ?  I  answer  that  the 
only  explanation  which  anywhere,  at  any  time,  can  be  offered 
for  existing  ratios  of  exchange,  is  found  in  the  relation 
between  supply  and  demand.  Within  each  of  the  several 
islands  taken  for  the  purpose  of  our  illustration,  values  would 


INTERNATIONAL  EXCHANGES.  113 

approximately  be  regulated  by  labor,  according  to  the  princi- 
ple first  stated.  But,  as  between  themselves,  each  of  these 
islands  would  constitute  a  unit,  whose  terms  of  exchange 
with  all  the  other  islands  would  be  determined  by  the  Equa- 
tion of  International  Demand,  to  use  the  phrase  of  Mr.  J.  S. 
Mill.  What  is  meant  by  this  formidable  phrase  ?  This  :  that 
values,  in  exchanges  between  these  islands,  will  be  governed 
by  the  demand  of  each  island  for  the  productions  of  all  the 
other  islands,  as  against  the  demand  of  all  the  other  islands 
for  those  commodities  which  itself  produces.  In  the  case 
supposed,  the  play  of  economic  forces  may  result  in  giving  to 
a  day's  labor  in  one  island  a  very  great  purchasing  power  in 
comparison  with  a  day's  labor  in  any  other  island,  and  a  vastly 
greater  purchasing  power  in  comparison  with  a  day's  labor  in 
some  one  other  island. 

Thus,  we  might  suppose  the  taste  for  olive  oil  and  wine  to 
be,  at  the  date  we  have  taken  for  the  purpose  of  this  illustra- 
tion, not  widely  spread  among  the  other  islands.  In  some, 
the  uses  of  olive  oil  might  not  be  known  at  all.  In  that  case, 
there  would  be  but  little  demand  for  the  productions  of 
island  No.  4,  as  a  whole.  As  between  the  producers  of  olive 
oil  and  the  producers  of  wine,  the  force  of  competition  would 
operate  steadily  to  bring  about  the  result  that  a  day's  labor 
in  a  vineyard  would  yield  as  much  purchasing  power  as  a 
day's  labor  in  an  olive  grove.  But,  while  the  producers  of 
olive  oil  and  the  producers  of  wine  would  thus  be  brought 
upon  an  equality  as  regards  each  other,  both  classes  of  pro- 
ducers would  be  at  a  disadvantage  in  comparison  with  pro- 
ducers in  the  other  islands,  generally.  We  might  say,  with 
the  producers  of  any  other  island  ;  or  we  might  suppose  that, 
the  mechanic  arts  being  still  in  a  backward  state,  island  No. 
5  would  experience  a  still  smaller  demand,  relative  to  its 
laboring  population  ;  and  the  inhabitants  of  that  island  might 
be  obliged  to  continue  getting  out  iron  ore,  smelting  it 
in  their  furnaces,  working  it  up  in  their  forges,  only  to 
sell  the  products  of  a  very  long  day's  labor  for  the  prod- 
ucts of  nine  hours'  labor  in  island  No.  6  ;  ten  hours' 
labor  in  island  No.  4  ;  six  hours'  labor  in  island  No.  3  ;  five 


114  POLITICAL  ECONOMY. 

hours'  labor  in  island  No.  1 ;  three  hours'  labor  in  island 
No.  2. 

We  have  said,  five  hours'  labor  in  island  No.  1,  and  three 
hours'  labor  in  island  No.  2.  How  is  this  ?  The  productions 
of  these  two  islands  are  the  samo  ;  their  soil  and  climate  we 
have  assumed  to  be  the  same.  Truly  ;  yet  the  fact  that  in 
one  of  these  islands  the  stage  of  diminishing  returns  has  been 
reached  and  passed  necessitates,  as  we  have  seen,  a  lower  per- 
capita  production  :  a  difference  which  might  not  be  exagger- 
ated in  the  ratio  of  three  to  five. 

If,  now,  we  assume  a  sudden  development  of  the  mechanic 
arts  and  a  rapid  and  extensive  use  of  iron  in  tools  and  ma- 
chinery, island  No.  5,  from  being  at  the  foot  of  the  scale,  as 
regards  the  purchasing  power  of  a  day's  labor,  might  rise 
almost  instantaneously  to  the  top.  A  day's  labor  there  might 
come  to  command  the  products  of  a  day's  labor  in  an  island 
previously  the  most  favored ;  might  soon  come  to  command  the 
products  of  two  or  three  days'  labor  almost  anywhere  else. 
What  island  No.  5  has  to  sell  has  now  become  of  supreme 
importance.  The  sugar  planters  of  Nos.  1  and  2,  the  wheat 
growers  of  No.  3,  the  lumber  operators  and  ice  cutters  of  No. 
6,  find  that  they  can  greatly  increase  their  production  with 
implements  and  machines  made  of  iron.  The  iron-workers, 
therefore,  realize  rich  gains,  and  fare  sumptuously  upon 
the  products  of  all  the  other  groups  of  laborers. 

Now,  upon  the  assumption  that  labor  and  capital  do  not 
flow  from  one  island  to  another,  but  only  products  are  im- 
ported or  exported,  each  island  would  be  left  indefinitely  to 
its  own  economic  lot,  be  that  a  hard  one  or  a  fortunate  one, 
according  to  the  demands  from  all  the  other  islands  for  its 
characteristic  products. 

154.  In  the  case  of  these  separate  communities,  does  the 
failure  of  values  to  correspond  to  amounts  of  labor,  depend 
upon  the  question  of  nationality?  I  answer,  no  :  the  failure 
of  correspondence  between  value  and  labor  would  occur  just 
as  fully  between  two  islands  which  were  subject  to  the  same 
government,  as  between  one  of  these  islands  and  still  another 
island  under  a  different  flag.  The  condition  we  have  noted 


INTERNATIONAL   EXCHANGES.  115 

Is  due  entirely  to  the  fact  assumed  at  the  beginning,  viz. : 
that  labor  and  capital  do  not  pass  from  one  of  these  trading 
communities  to  another.  It  has  nothing  to  do  with  nation- 
ality. Among  different  communities,  be  these  large  or  small, 
distant  or  near,  there  will  be  an  incessant  tendency,  due  to 
changes  of  population,  to  changes  in  the  arts,  to  changes  in 
commercial  demand,  to  the  varying  character  of  the  seasons, 
and  to  a  score  of  other  causes,  to  disturb  the  relation  between 
labor  and  value.  Except  as  these  causes  may  offset  each 
other,  the  one  force  which  should  restore  the  equilibrium  that 
has  been  disturbed,  is  to  be  found  in  the  movement  of  labor 
•or  of  capital,  or  of  both,  from  the  communities  where  the 
unit  of  labor  or  of  capital  receives  the  smaller  return  to  the 
communities  where  it  receives  the  larger  return.  If  that 
movement  does  not,  in  fact,  take  place,  the  differences  noted 
may  continue  and  may  even  increase  from  age  to  age. 

If,  then,  the  failure  of  values  to  correspond  to  amounts  of 
labor  expended,  has  nothing  to  do  with  the  fact  of  nationality, 
why  should  the  economists,  generally,  have  written  of  Inter- 
national Values,  of  International  Trade,  of  the  Equation  of 
International  Demand  ?  I  answer,  because  nations  seemed  to 
them  to  furnish  the  most  convenient  units  for  illustrating  the 
•operation  of  the  forces  concerned.  It  is  true,  it  was  true  even 
when  Ricardo  developed  this  theory,  in  the  early  part  of  the 
century,  that  there  are  definite  portions  of  the  same  nation 
between  which  the  movement  of  labor  and  capital  takes  place 
as  slowly  and  tardily  as,  often,  between  two  separate  nations. 
It  is  even  true  that  there  are  groups  of  nations  perhaps  widely 
sundered  geographically,  between  which  this  movement  takes 
place  far  moi-e  readily  than  between  contiguous  sections  of  the 
same  country. 

Still,  it  is  true  now,  and  was  true  in  a  much  higher  degree 
when  Ricardo  wrote,  that  obstructions,  physical,  intellectual 
and  moral,  to  the  movements  of  labor  and  capital,  tend  to 
gather  themselves  along  the  boundary  lines  of  nationality. 
This  arises  from  differences  of  speech,  of  race,  and  perhaps, 
also,  of  religion,  from  prejudices  against  aliens,  perhaps,  also, 
laws  putting  them  at  a  disadvantage  ;  from  reluctance  at  self- 


Il6  POLITICAL  ECONOMY. 

expatriation,  from  physical  obstacles  of  a  marked  character, 
which  often,  though  not  always,  serve  to  divide  nations  from 
each  other.  Between  any  two  given  nations  all  the  causes 
above  noted  may  enter  to  raise  to  a  maximum  the  resistance 
to  migration.  Between  other  two  nations,  only  a  part  of  these 
causes  may  operate,  and  may  operate  with  greatly  dimin- 
ished force. 

It  was  the  foregoing  considerations  which  induced  the  econ- 
omists to  take  nations  as  the  units  for  illustrating  the  econo- 
mic effects  of  a  cessation  of  the  movement  of  labor  and  capital 
between  separate  communities.  It  has  led,  however,  to 
misconception  at  two  points  :  first,  by  creating  the  impres- 
sion that  because  nations  were  taken  as  units  in  this  discus- 
sion, nationality  was  the  real  reason  for  the  phenomena 
observed  ;  secondly,  by  diverting  attention  from  the  effects  of 
a  cessation  of  such  movements  within  the  limits  of  national- 
ity. It  would  be  safe  to  say  that  there  are  nations  divided 
into  a  half-score  of  sections,  between  the  two  most  friendly  and 
fully  contiguous  of  which  the  movements  of  labor  and  capital 
are  scantier  and  slower  than  between  certain  two  other  nations, 
though  separated  by  thousands  of  miles. 

Wherever  the  movement  of  labor  and  capital  ceases,  there 
all  the  effects  which  are,  by  the  economists,  attributed  to 
national  differences,  become  fully  realized.  In  just  so  far  as 
those  movements  are  reduced  or  retarded,  the  natural  opera- 
tion of  competition,  in  restoring  the  normal  relation  of  value 
to  labor,  is  deferred  or  defeated.  Even  where  movements 
of  labor  and  capital  actually  take  place,  they  may  be  so  tardy 
and  difficult  that  local  causes  may  go  on  producing  inequali- 
ties between  the  purchasing  power  of  labor  in  neighboring 
communities,  much  faster  than  competition  can  efface  them. 

155.  It  follows  from  what  has  been  said,  that,  in  the  ex- 
changes of  two  considerable  communities,  be  the  same  dis- 
tinct countries  or  isolated  portions  of  the  same  country,  from 
one  to  the  other  of  which  movements  of  labor  or  capital  do 
not  take  place  or  take  place  so  tardily  and  painfully  that  they 
fail  to  keep  up  with  the  tendencies  to  divergence  indicated 
in  the  preceding  paragraph,  it  follows,  I  say,  that  in  the 


INTERACTIONAL  EXCHANGES.  117 

exchanges  between  two  such  communities,  articles  may  be 
imported  into  one  of  these  communities,  notwithstanding  the 
fact  that  it  could  there  be  produced  at  a  lower  cost  than  in  the 
community  from  which  it  was  exported  ;  and  this  state  of 
things  may,  under  the  conditions  recited,  continue  indefinitely- 

This  would  scarcely  happen  between  small  contiguous  com- 
munities. If  in  one  of  such  communities,  A.,  a  certain  kind 
of  goods  could  be  produced  at  lower  cost  than  in  communities 
B.,  C.  and  D.,  all  the  labor  and  capital,  employed,  within  that 
group,  in  the  production  of  that  article,  would  pass  over  into 
A.;  and  the  entire  production  of  that  article  for  that  group 
would  soon  take  place  in  that  single  community.  As  a  result 
of  this  play  of  economic  forces,  no  one  of  these  communities 
would  long  import  from  any  other  any  kind  of  goods  which  it 
could  possibly  itself  produce  at  a  lower  cost. 

Between  communities  or  countries,  however,  experiencing 
no  movements  of  labor  or  capital,  exchanges  of  goods  may,  as 
we  said,  continue  indefinitely  to  take  place,  notwithstanding 
the  fact  that  the  importing  countries  could,  if  they  would, 
themselves  produce  many  of  the  articles  at  a  lower,  perhaps  a 
much  lower  cost  than  that  at  which  they  are  actually  pro- 
duced in  the  countries  from  which  they  are  brought.  Thus, 
to  return  to  our  six  trading  islands,  we  might  suppose  that 
the  demand  for  olive  oil  and  wine  had  become  so  great  that 
the  inhabitants  of  island  No.  4  could,  by  one  day's  labor  in 
their  vineyards  or  groves,  command  the  products  of  two  days* 
labor  in  island  No.  1.  If  this  were  so,  it  might  clearly  be  for 
their  interest  to  continue  producing  olive  oil  and  wine  only, 
even  though  their  soil  and  climate  were  such  as  to  enable 
them  to  produce  sugar  or  coffee  or  tea  or  spices  at  two-thirds 
the  cost  of  which  they  were  actually  produced  in  island  No.  1. 
By  applying  all  their  labor  force  and  capital  force  to  that  for 
which  they  had  the  most  marked  qualification,  they  would,  in 
the  result,  obtain  more  of  any  and  all  products  which  they 
might  desire,  than  if  they  were  to  give  up  a  certain  portion  of 
their  labor  power  and  capital  power  to  the  production  of  arti- 
cles in  respect  to  which  their  natural  advantage  would  be  less 
than  in  raising  oil  and  wine,  though  it  might  be  greater 


Il8  POLITICAL  ECONOMY. 

than  that  enjoyed  by  the  actual  producers  of  the  articles  in 
question. 

156.  That  such  would  be  the  normal  operation  of  the  prin- 
ciple of  self-interest  will  readily  appear  if  we  take  the  case  ot 
a  skilled  mechanic,  say  a  blacksmith,  in  an  agricultural  com- 
munity. The  smith  may  have  been  brought  up  on  a  farm, 
and  he  may,  conceivably,  be  so  strong,  so  quick  in  his  motions, 
so  handy  with  tools,  that  he  could,  to-day,  do  one-fourth  more 
of  farm  work  than  any  one  in  the  neighborhood.  Since  then, 
he  can  do  farm  work  better  than  the  farm  hands,  will  he  leave 
his  forge  ?  That  will  depend  on  the  "  Equation  of  Demand." 
If  there  be  several  blacksmiths  in  the  community,  so  that  the 
demand  for  the  work  of  each  blacksmith  is  small,  and  if  the 
other  blacksmiths  are  as  well  able  to  work  at  the  forge  as  him- 
self, but  are  not,  like  himself,  able  to  turn  advantageously  to 
farming,  his  economic  interest  may  impel  him  to  agriculture. 
If,  on  the  other  hand,  he  is  the  only  blacksmith  in  the  com- 
munity, the  demand  for  his  work  will  certainly  be  great,  per- 
haps so  great  as  to  enable  one  day's  labor  on  his  part  to  com- 
mand two  ordinary  days'  labor  on  the  farm.  In  this  case  it 
would  be  the  height  of  folly  for  him  to  leave  his  forge,  since 
there  he  can  acquire  a  value  represented  by  2,  while  on 
the  farm  the  value  of  his  product  will  be  represented  by 
only  l£. 

The  reason  of  the  case  will  appear  still  plainer  if  we  con- 
template a  country  physician,  who,  having  been  brought  up 
on  a  farm,  and  being  accustomed  to  cultivate  a  small  tract,  for 
his  health  and  pleasure,  in  the  intervals  of  practice,  might 
easily  be  as  good  an  agriculturist  as  many  of  his  neighbors. 
The  question  is,  shall  he  buy  farm  products  or  raise  them  him- 
self ?  I  answer  :  so  far  as  health  and  pleasure,  in  the  intervals 
of  practice,  allow,  he  will  do  well  to  cultivate  the  land  ;  but 
as  a  matter  of  business  he  can  not  afford  to  sacrifice  the 
smallest  part  of  his  professional  work  for  the  sake  of  raising 
vegetables  instead  of  buying  them.  As  a  physician,  he  can 
easily  command  three  or  four  days'  labor,  for  one  of  his  own. 
Even  were  he  the  best  farm  hand  in  the  county,  he  would  be 
throwing  away  a  great  economic  advantage,  were  he  to 


INTERNATIONAL  EXCHANGES.  119 

attempt  to  raise  from  the  soil  all  that  which  he  desired  to 
consume. 

157.  Now,  what  we  have  seen  the  blacksmith  and  the  coun- 
ty physician  doing,  nations  and  smaller  communities  are  contin- 
ually doing,  under  the  operation  of  the  principle  of  self-interest. 
Many  a  country  imports,  generation  after  generation,  commod- 
ities a.,  b.  and  c.,  which  it  could  produce  more  cheaply  than 
those  who  made  them.     The  reason  is,  that  there  are  other 
branches  of  industry,  x.,  y.  and  z.,  in  which  it  has  a  still  higher 
relative  advantage.     So  far  as  movements  of  labor  and  capital 
take  place,  there  will  be  a  constant  tendency  for  laborers  and 
capitalists  to  come  to  the  more  favored  country,  and  here  set 
up  industries,  a.,  b.  and  c.     But  this  will,  at  the  best,  go  on 
slowly  ;  and  it  may  be  altogether  defeated  by  the  discovery 
that  commodities,  m.,  n.  and  o.,  can  be  produced  in  the  country 
in  question,  not,  indeed,  so  advantageously  as  a;.,  y.  andz.,  but 
far  more  advantageously  than  a.,  b.  and  £.     Consequently,  all 
the  additional  labor  and  capital  coming  into  this  country,  in 
this  generation  and  perhaps  in  the  next,  may  be  directed  to- 
ward building  up  industries  m.,  n.  and  o. ;  and  commodities 
a.,  b.  and  c.  may  continue  to  be  imported. 

158.  Such  being  the  conditions  under  which  trade  takes 
place  between  countries,  from  one  to  the  other  of  which  move- 
ments of  labor  and  capital  do  not  occur,  or  occur  so  tardily  as 
not  to  overtake  the  tendencies  to  local  disturbance  which  have 
been  dwelt  upon,  we  have  to  note  two  things  in  closing  this 
chapter. 

First,  in  any  country,  the  value  of  an  imported  article  does 
not  tend  to  be  determined  by  what  would  be  the  cost  of  pro- 
duction of  that  article  in  that  country.  It  does  not  even  tend 
to  be  determined  by  its  cost  in  the  country  in  which  it  was 
actually  produced.  The  normal  value  of  such  an  article,  in 
such  a  place,  depends  on  the  cost  of  -production  of  the  article 
which  is  exported  to  pay  for  it,  transportation  being  taken 
into  account. 

Second,  while  it  is  for  the  interest  of  a  country  enjoying 
great  economic  advantages,  to  apply  its  labor  power  and 
capital  power  to  certain  lines  of  production,  only,  looking  to 


120  POLITICAL  ECONOMY. 

purchase  from  others  many  classes  of  commodities  which  it 
•could  prod-ace  as  well  as  or  even  better  than  they,  such  a  course 
is  also  for  the  economic  interest  of  the  countries  with  which 
it  trades,  since  they  are  thereby  enabled  to  obtain  the  products 
of  the  former  country,  at  a  lower,  probably  much  lower,  cost 
than  that  at  which  they  could  hope  themselves  to  produce 
these,  or  to  obtain  them  from  any  other  quarter. 


CHAPTER  III. 

MONEY    AND    ITS   VALUE. 

159.  Exchange  Arises  out  of  the  Division  of  Labor.— Men 
become  the  producers  of  that  which  they  expect  to  consume 
but  in  part,  if  at  all.  Their  choice  as  to  what  they  shall  pro- 
•duce,  ceases  to  be  determined  by  considerations  affecting  their 
personal  wants,  and  comes  to  be  determined  mainly,  if  not 
wholly,  by  considerations  affecting  their  abilities  and  apti- 
tudes. They  no  longer  produce  that  which  they  desire  to  eat, 
drink  or  wear.  They  produce  that  one  among  many  things 
known  to  the  market  which  they  can  produce  to  the  best  ad- 
vantage, let  who  will,  in  time,  eat,  drink  or  wear  it.  Their 
own  wants  they  look  to  see,  in  turn,  satisfied  by  the  labor  of 
others. 

To  the  market  allproducers  bring  their  several  products,  or 
such  part  thereof  as  they  do  not  care  individually  to  consume. 
From  the  market  each  late  producer,  now  become  a  consumer, 
carries  away  that  which  he  is  to  eat,  drink,  or  wear,  or  other- 
wise enjoy.  In  the  market  is  done  that  which  we  call  ex- 
change. 

The  economic  function  of  exchange  is  to  bring  producers 
and  consumers  together,  and  thus  allow  the  division  of  labor 
to  be  carried  as  far  as  it  will  increase  production.  The  divi- 
sion of  labor  has  no  economic  virtue  except  so  far  as  it  in- 
creases production.  When  that  point  has  been  reached,  a 
further  subdivision  of  occupations  and  employments  would  be 
•useless,  or  of  merely  curious  interest.  Exchange,  in  turn,  has 


THE  FUNCTION  OF  MONEY.  12 1 

no  virtue  except  as  it  allows  the  division  of  labor  to  be  carried 
out.  Its  sole  function,  economically,  is  to  enable  each  species 
of  wealth,  each  article  known  to  the  market,  to  be  produced 
in  the  place  and  by  the  person  where  and  by  whom  it  can  be 
produced  to  the  greatest  advantage. 

160.  The  Economic  Function  of  Money. — In  its  function 
of  bringing  producers  and  consumers  together,  exchange  dis- 
covers the  need  of  the  great  agent  of  which  we  are  about  to 
speak — Money.     Just  as  the  occasion  for  exchange  arises  out 
of  the  fact  of  the  division  of  labor,  and  as   the  economic 
efficiency  of  exchange  is  limited  to  that  occasion,  so  the  need 
of  money  arises  solely  out  of  the  fact  of  exchange,  and  the 
economic  efficiency  of  money  is  limited  strictly  to  the  occasion 
for  exchange.     The  interests  of  a  community  require  as  much 
exchanging  as  will  secure  that  division  of  labor  which  will 
achieve  the  highest  productiveness  of  land,  labor  and  capital ; 
and  they  require  no  more  exchanging  than  this.     They  require 
as  much  money  as  will  enable  that  amount  of  exchanging  to 
be  effected  with  the  least  effort  and  with  the  greatest  assur- 
ance of  a  transfer  of  real  equivalents  ;   and  they  require  no 
more  money  than  this.     No  economic  efficiency  other  than  or 
beyond  that  indicated,  can  justly  be  attributed  to  money. 

But  how  does  money  facilitate  those  exchanges  which  it  is 
for  the  interest  of  society  to  have  effected  ?  Just  what  is  the 
function  of  money  ? 

161.  Double  Coincidence  in  Barter. — Money  facilitates 
exchanges  by    dispensing   with    that  double  coincidence,  of 
wants  and  of  possessions,  which  barter,  i.,  e.  exchange  without 
the  use  of  money,  involves.     We  have  seen  that,  so  far  as  the 
division  of  labor  is  carried  out,  men  cease  to  produce  all  or 
even  the  greater  part  of  what  they  wish  to  consume.     Pro- 
ducing that  which  they  can  produce  to  the  best  advantage, 
they  look  to  others  for  those  particular  articles  which  are  re- 
quired for  the  supply  of  their  individual  wants.     The  producer 
and  the  would-be  consumer  of  each  article,  therefore,  must  get 
together,  somehow,  or  else  the  wants  of  the  community  will 
remain  unsatisfied. 

But  that  each  producer  for  himself  should  find  some  person 


122  POLITICAL  ECONOMY. 

who  has  what  he  wants  and  at  the  same  time  wants  what  he 
has,  would  involve  very  roundabout  exchanges,  occupying  a 
great  deal  of  time,  and  occasioning  much  delay  and  frequent 
disappointments.  The  bootmaker  who  wanted  a  hat  for  his 
own  use  might  find  many  persons  who  would  be  glad  to  get 
pairs  of  boots,  but  had  no  hats  to  give  in  exchange,  and  sev- 
eral persons  who  had  hats,  indeed,  to  sell,  but  were  already 
supplied  with  boots,  before  he  found  one  person  who  both  had 
hats  and  lacked  boots.  And,  moreover,  when  that  person 
were  found,  a  further  difficulty  would  probably  arise  from  the 
failure  of  an  exact  equivalency  between  the  two  articles  to  be 
exchanged.  A  pair  of  boots  might  be  worth  more  than  a  hat ; 
perhaps  three  pairs  of  boots  might  be  worth  four  hats.  Yet 
the  bootmaker  wants  but  one  hat  ;  the  hatter  wants  but  one 
pair  of  boots.  Things  would  soon  get  into  a  fearful  muddle, 
this  way. 

But  if,  by  general  consent,  formal  or  implied,  the  producers 
of  the  community  should  hit  upon  one  article  which  they 
would  all  agree  to  take  in  exchange  for  whatever  they  wished 
to  sell,  a  vast  saving  of  time  and  labor,  of  annoyance  and  dis- 
appointment, would  be  effected,  especially  if  the  article  so  taken 
should  be  one,  say,  wheat,  susceptible  of  minute  division,  with- 
out loss  of  utility. 

162.  Money,  the  Medium  of  Exchange. — What  shall  we 
call  the  function  which  the  wheat  would  in  this  case  perform  ? 
Clearly  it  is  something  altogether  beyond  and  in  addition  to 
its  ordinary  natural  function,  as  wheat,  which  is  simply  to  be 
made  into  flour,  to  be,  in  turn,  made  into  bread.  In  the  use 
proposed,  the  wheat  would  serve  another  purpose.  What  shall 
we  call  that  purpose  ? 

The  function  performed  by  the  wheat,  in  the  instance  given, 
is  that  of  a  Medium  of  Exchange.  The  significance  of  the 
word  medium,  in  this  connection,  is  found  in  the  fact  that  the 
wheat  becomes  an  intermediate  thing  in  the  commerce  between 
the  producers  and  the  consumers  of  any  and  of  every  article. 
The  wheat  is  no  longer  an  end,  as  when  used  for  food,  but  a 
means  to  an  end,  which  end  may  be  boots,  or  hats,  or  gro- 
ceries, or  what  not.  The  person  who  takes  wheat  for  what  he 


THE  MEDIUM  OF  EXCHANGE.  123 

has  produced  may  already  have  more  wheat  than  he  could  eat 
in  a  year.  He  does  not  take  it  with  a  view  to  eating  it,  but 
because  with  it  he  can  obtain,  in  kinds  and  quantities  and 
at  times  to  suit  his  wants  and  convenience,  whatever  he 
may  wish  to  eat,  drink,  or  wear,  or  to  warm  or  house  himself 
withal. 

Now,  the  function  which  has  been  described  is  the  Money 
function.  Money  is  the  medium  of  exchange.  Whatever 
performs  this  function,  does  this  work,  is  money,  no  matter 
what  it  is  made  of,  and  no  matter  how  it  came  to  be  a  medium 
at  first,  or  why  it  continues  to  be  such.  So  long  as,  in  any 
community,  there  is  an  article  which  all  producers  take  freely 
and  as  a  matter  of  course,  in  exchange  for  whatever  they  have 
to  sell,  instead  of  looking  about,  at  the  time,  for  the  particular 
things  they  themselves  wish  to  consume,  that  article  is  money, 
be  it  white,  yellow,  or  black,  hard  or  soft,  animal,  vegetable, 
or  mineral.  There  is  no  other  test  of  money  than  this.  That 
which  does  the  money-work  is  the  money-thing.  It  may  do 
this  well  ;  it  may  do  this  ill.  It  may  be  good  money  ;  it  may 
be  bad  money — but  it  is  money  all  the  same. 

163.  Universal  Acceptability  of  Money.  —  We  said,  all 
producers,  since  it  is  not  enough  that  an  article  is  extensively 
used  in  exchange,  to  constitute  it  money.  Bank  checks  are 
used  in  numerous  and  important  transactions  of  exchange,  yet 
are  not  money.  It  is  essential  to  money  that  its  acceptability 
should  be  so  nearly  universal  that  practically  every  person  in 
the  community  who  has  any  product  or  service  to  dispose  of 
will  freely,  gladly,  and  of  preference,  take  this  thing,  money, 
instead  of  the  particular  products  or  services  which  he  may 
individually  require  from  others,  being  well  assured  that  with 
money  he  will  unfailingly  obtain  whatever  he  shall  desire,  in 
form  and  amount  and  at  times  to  suit  his  wants. 

When  any  article,  no  matter  what  its  substance  or  form, 
acquires  this  degree  of  acceptability,  no  matter  how  obtained 
or  how  retained,  so  that  each  person,  in  his  place  in  the  indus- 
trial order,  without  the  expectation  of  consuming  this  article, 
and  without  reference  to  the  character  or  credit  of  the  person 
offering  it,  takes  it  freely  from  any  man  whenever  he  has  any- 


I24  POLITICAL   ECONOMY. 

thing  to  sell,  because  he  knows  that  any  other  man  will  freely 
take  it  from  him  whenever  he  may  wish  in  his  turn  to  buy, 
that  article  becomes  money,  and  remains  money  while  that 
condition  continues.  To  serve  as  the  medium  of  exchange  is 
the  money-function,  and  whatever  does  this  is  money. 

164.  Money  and  Civilization.— It  is  evident  that  the  intro- 
duction of  money,  even  in  a  primitive  state,  vastly  facilitates 
exchanges,  and  renders  it  easy  to  carry  out  the  division  of 
labor.     It  is  further  evident  that  the  use  of  money  is  a  con- 
dition precedent  to  an  advanced  state  of  industrial  society. 
The  division  of  labor  could  not  without  it  be  carried  so  far 
as  is  involved  in    complicated    manufactures    and   extended 
commerce. 

"  It  has  been  wisely  said,"  remarks  M.  Chevalier,  "  that  no 
machine  economizes  labor  like  money,  and  its  adoption  has 
been  likened  to  the  discovery  of  letters." 

The  allusion  is  probably  to  the  noble  sentence  of  Gibbon  : 
"  T  he  value  of  money  has  been  settled  by  general  consent  to 
express  our  wants  and  our  property,  as  letters  were  invented 
to  express  our  ideas  ;  and  both  these  institutions,  by  giving  a 
more  active  energy  to  the  powers  and  passions  of  human 
nature,  have  contributed  to  multiply  the  objects  they  were 
designed  to  express." 

165.  Historical  Forms  of  Money — We  have  said  that  any 
article    which    acquires  a   certain    degree    of    acceptability 
throughout  the  community,  would   thereby  become  money, 
whatever  its  material  or  form.     Yet  material  and  even  form 
may  have  much  to  do  with  securing  to  any  given  article,  at 
any  given  time,  the  requisite  degree  of  acceptability.     The 
industrial  habits  and  the  tastes  of  a  people  and  their  social 
conditions  may  make  that  money  which  among  another  people 
would  be  an  impossible  money.     Rock  salt  long  served  the 
Abyssinians  as  money  ;  rice,  the  dwellers  on  the  Coromandel 
shore  ;  cacoa,  the  aboriginal  Mexicans  ;  olive  oil,  the  inhab- 
itants of  the  Ionian  islands  ;  wampum,    the  early  New  En- 
glanders  ;  tobacco,  the  early  Virginians  and  Marylanders  ;  tea, 
compressed  into  small  cakes,  the  Russians  ;  dates,  the  savages 
of  the  African  oases  ;  beaver  and  seal  skins,  the  peoples  of 


VARIOUS  FORMS   OF  MONEY.  125 

many  northern  lands.  Cattle  and  sheep  were  employed  as 
money,  alike  by  the  early  Greeks,  by  the  Romans  who 
conquered  the  Greeks,  and  by  the  Teutons  who  conquered 
the  Romans. 

166.  The  Metals  as  Money. — But,  of  all  substances,  the 
metals  have  enjoyed  the  widest  use  as  money,  from  a  remote 
period.  Iron,  lead,  tin  and  copper,  one  or  another,  have  been 
thus  employed  in  nearly  every  country  whose  history  is 
known. 

From  its  numerous  and  important  uses  in  the  domestic  arts, 
in  the  chase,  and  in  warfare,  the  first-named  metal  was  the 
subject  of  such  wide  and  constant  demand  as  to  make  its 
further  use  as  the  general  medium  of  exchange,  i.  e.,  as  money, 
vi-ry  simple  and  natural.  The  art  of  mining  being  in  early 
times  very  crude,  small  quantities  of  iron  represented  a  large 
amount  of  labor,  and  thus  contained  a  high  purchasing  power. 
Moreover,  in  comparison  with  wheat,  cattle,  and  many  other 
primitive  forms  of  money,  iron  cost  little  or  nothing  to  keep 
and  was  but  little  subject  to  waste,  while  a  given  mass  could 
easily  be  divided  into  pieces  of  any  required  dimensions,  which 
could  again  be  reunited,  by  fusion,  or  by  welding  when  heated. 
The  money  of  Lacedaemon  was  of  iron  ;  the  Swedes  used 
money  of  this  metal  during  and  after  the  exhausting  wars  of 
Charles  XII.  ;  and  iron  is  still  reported  to  be  so  used  by  the 
inhabitants  of  Senegambia. 

Lead  was  extensively  employed  as  money  by  the  early 
Romans  and  the  early  English,  and  is  still  used  in  the  same 
way  by  the  Burmese.  Tin  was  used  by  the  Mexicans  as 
money;  was  long  so  employed  in  Sweden,  in  long,  flat  blocks  ; 
and  is  even  now  a  medium  of  exchange  among  the  Chinese 
and  Malays  and  in  Prince  of  Wales  Island. 

But  more  than  iron,  tin  or  lead,  has  copper,  in  the  later 
centuries,  been  used  as  money.  Having,  from  its  cost  of  pro- 
duction, a  high  value  for  its  bulk,  it  came  to  supersede  iron  in 
this  use,  when  the  latter  metal  became  too  cheap  to  form  a 
convenient  money.  During  the  silver  famine  of  the  middle 
ages,  copper  returned  to  be  the  chief  money  of  circulation  in 
Europe.  And  though,  after  the  revival  of  silver  production 


126  POLITICAL  ECONOMY. 

through  the  discovery  of  Mexico  and  Peru,  it  fell  out  of  use 
as  a  principal  money  of  wealthy  and  prosperous  countries,  it 
has  remained  a  considerable  element  in  the  monetary  circula- 
tion of  the  world,  even  to  this  day. 

Platinum  was  for  a  brief  period,  between  1828  and  1845, 
used  as  money  in  Russia,  where  that  metal  is  produced  ;  but 
the  great  difficulty  of  rendering  platinum,  now  from  ingots 
into  coin,  and  again  from  coin  into  ingots,  prevented  the  suc- 
cess of  this  experiment,  notwithstanding  that  platinum  is 
justly  regarded  as  one  of  the  noblest  of  the  metals. 

167.  The  Precious  Metals. — All  the  other  metals,  however, 
pale  before  the  light  of   two   transcendent   substances,   the 
Precious  Metals,  so-called,  silver  and  gold.     Having  numerous 
important  uses  in  the  industrial   arts  ;  possessing  the  highest 
adaptation  for  the  purposes  of  ornament  and  decoration,  these 
metals  have  always  and  everywhere  exerted,  beyond  all  other 
objects  of  human  desire,  a  strange,  a  mysterious  fascination 
upon  the  minds  of  men. 

168.  Coinage. — Under  the  title,  coinage,  we  may  take  ac- 
count of  all  methods  of  determining,  for  easy  popular  recog- 
nition, the  quantity  and  quality  of  individual  portions  of  that 
which  is  used  as  money.     It  is  in  their  adaptations  to  the  art 
of    the  coiner  that  the  metals,  and  especially  the  precious 
metals,  exhibit  their  most  marked  qualifications  for  use  as 
money.     With  some  kinds  of  money,  indeed,  no  such  mode  of 
determination  is  required,  the  divisions  being  natural,  as  in  the 
case  of  the  red  feathers  and  shells  used  as  money,  or  of  cattle 
and  sheep,  which  only  need  to  be  counted. 

With  other,  and  indeed,  most,  forms  of  money,  it  is  neces- 
sary to  give  a  customary  shape  to  the  pieces  to  be  so  used. 
The  Abyssinians,  who  used  rock  salt  as  money,  cut  it  into 
bricks  of  uniform  dimensions,  so  that  each  person  taking  a 
brick  in  exchange  might  know  how  much  salt  he  was  receiv- 
ing. Here,  the  problem  was  merely  mechanical  ;  no  chemical 
tests  were  required.  The  salt  being  of  reasonably  uniform 
quality,  the  receiver  was  only  interested  to  know  its  quantity. 

With  money  of  gold  and  silver,  and  even  of  copper  or  iron, 
however,  both  the  quantity  and  the  quality  of  each  piece 


COINAGE.  0  12  7 

offered  may  be  brought  into  question,  unless  some  means  be 
adopted  by  which  the  piece  shall  be  made  to  exhibit  unmis- 
takably the  amount  of  pure  metal  it  contains.  The  problem 
is  thus  both  a  mechanical  and  a  chemical  one,  and  is  solved  by 
what  we  call,  in  the  limited  sense,  Coinage.  The  metal  is 
melted,  and  in  that  state  is  brought  to  the  required  degree  of 
purity,  or  "  fineness."  It  is  then  cast  into  ingots,  and  by  suc- 
cessive mechanical  processes,  with  machinery  of  great  delicacy 
and  power,  drawn  out  to  the  required  thickness,  cut  into 
planchets,  "  milled  "  around  the  edges,  and  stamped  on  both 
sides*  with  devices  expressive  both  of  the  sovereignty  of  the 
nation  under  whose  authority  the  coins  are  struck,  and  of  the 
quality  and  quantity  of  the  metal  contained. 

Coinage  has  generally  been  regarded  as  an  act  of  sov- 
ereignty, and  the  counterfeiting  of  the  coin  has  been  widely 
punished  as  treason.  In  England,  the  King's  sovereignty 
only  extended  to  the  coinage  of  gold  and  silver,  the  private 
coinage  of  copper  not  having  been  prohibited  until  the  present 
century.  So  important  is  the  money-function,  so  strong  is  the 
tendency  to  abuse  the  privilege  of  coining,  so  helpless  are  the 
mass  of  the  community,  especially  the  poor  and  economically 
weak,  under  a  corrupted  coinage,  that,  even  in  popular  gov- 
ernments, where  prerogative  is  not  known,  the  private  mint- 
ing of  money  is  punished  by  grave  penalties.  That  coins 
shall  fully  perform  their  office  as  money,  they  must  be  taken 
readily,  without  suspicion,  or  at  most,  after  a  brief  inspection 
.such  as  even  the  ignorant  and  inexpert  can  give. 

169.  What  Determines  the  Value  of  Money  ? — It  is  only 
the  present  inquiry  which  brings  the  topic  of  money  into  the 
department  of  exchange.  Otherwise,  money  belongs  to  the 
department  of  production,  as  clearly  as  does  any  other  agency 

*  At  first,  coins  were  impressed  on  one  side,  as  is  now  the  "gall," 
the  only  native  coin  of  Cochin  China.  This  allowed  the  rnetal  to  be 
shaved  from  the  smooth  side  of  the  coin.  Afterwards  characters  were 
stamped  on  both  sides,  but  the  area  of  the  coin  was  not  fully  defined, 
allowing  the  edges  to  be  clipped,  as  is  largely  the  case  with  the  Tomans 
of  Persia.  Later  improvements  surrounded  the  coin  with  a  well-defined 
rim,  while  the  edges  were  milled  to  still  further  protect  the  integrity 
of  the  piece- 


128  ^    POLITICAL  ECONOMY. 

of  trade  or  transportation,  cattle,  carts,  railways  or  banks. 
The  mining  of  the  precious  metals  is  governed  by  the  laws 
which  regulate  the  production  of  other  kinds  of  wealth.  The 
minting  of  gold  and  silver  is  equally  a  branch  of  production. 
Assayers,  refiners  and  coiners  are  as  much  producers  of  wealth 
as  the  laborers  employed  in  a  pig-iron  furnace. 

But  under  the  title,  Exchange,  we  may  properly  inquire 
why  any  one  article,  produced  as  we  find  it  to  be  produced, 
under  existing  conditions,  exchanges  for  so  much  of  any  other 
article,  and  not  for  more  or  for  less.  Pre-eminently  in  respect 
to  iron  or  copper,  silver  or  gold,  when  cut  into  planchets  and 
stamped  as  coin,  do  we  need  to  raise  this  question  and  discuss 
it  in  all  simplicity  and  severity  of  reasoning,  because  the  sub- 
ject has  been  allowed  to  become  involved  in  a  thousand  diffi- 
culties, from  the  lack  of  clear  definitions  and  from  the  failure 
rigorously  to  exclude  every  thing  alien  or  adventitious.  The 
discussion  of  the  laws  of  money  has  engendered  so  much  pas- 
sion and  prejudice  as  to  make  it  hard  to  secure  a  respectful 
attention,  or  even  a  rational  attitude  of  mind  towards  any 
statement  of  monetary  doctrine  which  differs  in  the  minutest 
particular  from  that  of  the  hearer.  Men  who  are  candid  and 
even  liberal  in  politics  and  religion  become  furiously  or 
stupidly  fanatical  as  soon  as  their  views  on  money  are  contro- 
verted. When  Sir  Walter  Scott  made  a  surly  critic  say  to  the 
author  of  certain  Letters  on  the  Currency,  "  In  your  ill-ad- 
vised tract  you  have  shown  yourself  as  irritable  as  Balaam 
and  as  obstinate  as  his  ass,"  he  evidently  intended  to  charac- 
terize the  whole  race  of  writers  on  this  theme. 

The  value  of  money,  like  the  value  of  any  thing  else,  is 
purely  a  question  of  demand  and  supply.  The  cost  of  produc- 
ing money  is  only  important  as  affecting  the  supply.  Limit 
the  supply,*  and  it  does  not  matter  whether  there  be  any  cost 
of  production  or  not.  The  advantage  of  taking  that  for  use 
as  money  which  has  an  appreciable,  definite,  and,  as  far  as  may 
be,  constant  cost  of  production,  is  found  in  the  fact  that  the 

*I  have  already  quoted  (par.  120)  the  remark  of  Prof.  Senior  that 
"any  other  cause  limiting  supply  is  just  as  efficient  a  cause  of  value  in 
an  article,  as  the  necessity  of  labor  to  its  production." 


THE  MONEY  DEMAND.  129 

supply  of    such    money  will  be   limited  by    natural    causes, 
instead  of  being  left  to  law,  convention  or  accident. 

170.  What  is  the  Demand  for  Money  ?— The  demand  for 
money  is  the  occasion  for  the  use  of  money  in  effecting  ex- 
changes.    In  other  words,  it  is  the  amount  of  money -work  to 
be  done. 

This  is  not  determined  by  the  gross  volume  of  the  wealth 
of  the  community,  since  all  that  wealth  is  not  to  be,  in  fact, 
exchanged.  For  a  similar  reason,  it  is  not  determined  by  the 
amount  of  the  annual  production  of  the  community. 

It  is  not  determined  even  by  the  volume  of  products  to  be 
exchanged,  inasmuch  as  some  classes  of  these  may  require  to 
be  exchanged  several  times,  and  some  but  once.  Moreover, 
in  spite  of  the  difficulties  of  baiter,  many  products  are,  through 
a  fortunate  coincidence  of  wants  and  of  possessions,  especially 
in  agricultural  communities,  exchanged  against  each  other. 
More  important  still,  the  modern  organization  of  commerce, 
especially  through  the  agency  of  banks,  provides  for  the  crea- 
tion, and  subsequent  cancellation,  of  indebtedness*  on  account 
of  products  given  and  taken  in  exchange,  to  an  extent  which 
vastly  diminishes  the  actual  use  of  money  in  effecting  transfers. 

171.  The  Money-Demand  a  Reality. — Not  the  less,  is  the 
demand  for    money  a    reality.     Banks   and  clearing-houses, 
checks  and  book  credits  reduce  the  occasion  for  the  use  of 
money,  but  they  do  not  supersede  its  use  altogether,  nor  are 
there  any  signs  that  they  will  do  so  in  any  future,  near  or  re- 
mote.    In  every  community,  though  in  some  more  than  others, 
goods  are  offered  for  money.     Men  seek  money,  having  in 
their  hands  wherewithal  to  pay  for  it.     Some  of  them  must 
have  money,  whatever  it  cost.     With  others  any  appreciable 
increase  in  the  difficulty  of  getting  money,  or  any  appreciable 
doubt  as  to  the  "  goodness  "  of  that   which  is  circulating  in 
the  community,  does  away  with  the  disposition  to  obtain  it, 
drives  them  to  barter,  and  thus  destroys  a  portion  of  the  de- 
mand for  money. 

Some  part  of  the  exchangers  of  every  community  may  be 

*This  lancnon  of  banks  will  be  spoken  of,  more  at  length,  under  that 
title  in  Part  VI. 


130  POLITICAL  ECONOMY. 

regarded  as  always  on  the  verge  of  barter.  They  could  ex- 
change their  products  for  the  products  of  others  which  they 
wish  to  consume,  without  unreasonable  trouble.  Others,  again, 
would  exchange  their  products  for  money  in  the  face  of  very 
great  difficulties  and  embarrassments  ;  yet  for  each  of  these  is 
a  point  at  which  difficulties  and  embarrassments  will  give  rise 
to  an  effort,  which  will  thereafter  increase  rapidly  in  -force,  to 
resort  to  barter  or  to  credit,  as  the  means  of  escaping  the  use 
of  money.  Should  the  matter  proceed  far  enough,  produc- 
tion will  even  be  limited  or  modified  to  meet  the  exigency. 

172.  Effect  of  Discredit  on  the  Money-Demand.— Thus,  if 
the  money  of  a  countiy  be  openly  discredited,  as  in  France 
prior  to  and  during  the  Hundred  Years'  War,  and,  again, 
during  the  Revolution  ;  in  England,  under  Henry  VIII.  and 
the  Protector  Somerset ;  in  the  United  States,  during  the  cir- 
culation of  the  so-called  Continental  currency  ;  and  in  Italy, 
through  many  dreary  periods  of  her  history,  men  will  not  only 
resort  increasingly  to  barter  or  to  credit,  but  such  discredit 
of  the  coin  or  other  circulating  medium  may  become  a  force 
which  will  operate  powerfully  to  modify  and  even  to  limit 
production.  Men  will  produce  fewer  things  and  those  differ- 
ent from  what  they  would  have  done  under  conditions  more 
favorable  to  the  division  of  labor  and  the  consequent  exchange 
of  products. 

This,  however,  can  never  be  carried  so  far  as  totally  to  dis- 
pense with  the  use  of  money.  In  any  society  above  the  bar- 
barous state,  something  must  be  used,  to  some  extent,  as 
money,  so  long  as  production  goes  on  at  all. 

We  see,  thus,  that  the  demand  for  money  has  no  definite 
relation  to  the  total  wealth,  or  the  annual  product  of  a  com- 
munity, or  even  to  the  volume  of  products  to  be  exchanged. 
The  demand  for  money  varies  with  the  amount  of  money- 
work  to  be  done,  which,  in  turn,  varies  with  the  industrial 
organization  of  communities,  with  seasons,  and  with  circum- 
stances innumerable.  Not  the  less,  however,  as  we  said,  is  the 
demand  for  money  a  real  thing.  Goods  are  offered  for 
money  ;  and,  with  a  given  supply,  the  more  goods  are  so 
offered,  the  higher  will  be  the  value  of  money— that  is,  prices 


THE  MONEY  SUPPLY.  131 

will  fall.     The  fewer  goods  are  offered,  the  lower  will  be  the 
value  of  money — that  is,  prices  will  rise. 

173.  Value  and  Price.— It  will  have  been  noticed  that,  in 
the  foregoing  paragraph,  I  have  used  the  word  price  as  signi- 
fying the  money-value  of  goods.     As  we  stated  in  a  previous 
chapter,  value  is  the  generic  term  which  expresses  power-in- 
exchange.      Price   is   power-in-exchange-for-some-one-article. 
Where  money  is  used,  price  commonly  expresses   power-in 
exchange-for-money.     Where  nothing  to  the  contrary  is  inti- 
mated, the  price  of  an  article  is  understood  to  be  the  value  of 
that  article  in  terms  of  money — the  amount  of  money  it  will 
command  in  exchange. 

1 74.  What  is  the  Supply  of  Money  ? — If  such  is  the  demand 
for  money,  what  is  the  supply  ?     It  is  the  money-force  avail- 
able to  do  the  money-work  required  to  be  done,  in  the  given 
community,  at  the  given  time.     The  money-force,  or  the  sup- 
ply of  money,  is  not  measured  by  what  is  usually  called  the 
amount  of  money,  that  is,  the  number  of  gold  dollars  or  bits 
of  paper  used  as  money,  but  is  composed  of  two  factors — the 
amount  of  money  and  the   rapidity  of   circulation.     "  The 
nimble  sixpence  does  the  work  of  the  slow  shilling."     There 
may  be  as  much  money-force  in  1000  dollars,  each  of  which 
passes  from  hand  to  hand  four  times  a  week,  as  in  4000  dollars 
which    change   owners   but  once  from  Monday  morning  to 
Saturday  night.      The  rapidity  of  circulation  varies  widely 
among  different  communities,  according  to  the  density  of  set- 
tlement, the  prevailing  occupations  of  the  people,  the  facilities 
for  the  transportation  of  freight  and  passengers.     And  the 
rapidity  of  circulation  not  only  varies  according  to  such  gen- 
eral conditions,  but  it  varies  from  day  to  day,  with  the  state 
of  trade  and  the  temper  of  the  public  mind. 

175.  The  Money  Supply  a  Reality. — But  while  the  money- 
supply  varies  thus  incessantly,  it  is  none  the  less  a  real  thing  ; 
so  real  that,  at  any  given  time  a  decrease  of  the  supply  of 
money  will  enhance  its  value — that  is,  will  lower  prices  ;  and 
an  increase  of  that  supply  will  reduce  its  value — that  is,  will 
raise  prices. 

We  have  spoken  of  reducing  the  value  of  money  as  equiva- 


132  POLITICAL  ECONOMY. 

lent  to  raising  prices  ;  and  of  enhancing  the  value  of  money 
as  equivalent  to  lowering  prices.  This  is  manifest  enough  to 
anyone  who  thinks  of  the  matter  ;  but  the  student  of  political 
economy  needs  to  become  so  familiar  with  this  equivalency 
that  he  will  not  have  to  think  consciously  about  it  ;  but  the 
one  mode  of  expression  will  always  and  instantly  suggest  its 
equivalent.  To  enhance  the  value  of  money  is,  of  course,  to 
give  a  larger  purchasing  power  to  each  integral  part  of  the 
circulating  money — that  is,  to  each  piece  or  coin,  and  to  any 
given  number  of  pieces  or  coins.  But  if  money  purchases 
more  of  other  things,  other  things,  conversely,  purchase  less 
of  money — that  is,  bear  lower  prices. 

On  the  other  hand,  to  say  that  the  value  of  money  is  low- 
ered, is  to  say  that  money  purchases  less  of  other  things  ;  but 
if  money  purchases  less  of  other  things,  other  things,  con- 
versely, purchase  more  of  money — that  is,  bear  higher  prices. 

176.  International  Distribution  of  Money. — We  have 
seen  that  it  is  impossible  to  say  what,  at  any  time,  in  any 
community,  is  the  demand  for  money,  or  the  supply  of 
money.  We  have  now  to  see  that,  with  money  having  a 
natural  cost  of  production,  no  one  has  any  need  to  know, 
either  how  much  money  there  is,  or  how  much  is  needed, 
inasmuch  as  the  demand  for  money  will,  under  such  a  system, 
easily  and  surely,  because  automatically,  bring  in  the  due 
supply  required  to  enable  all  the  exchanges  of  the  community 
to  be  transacted  with  the  minimum  of  effort  and  delay, 
and  with  the  highest  assurance  of  the  exchange  of  real 
equivalents. 

The  territorial  distribution  of  money  is  effected  through 
the  agency  of  Price. 

Let  us  suppose  that,  of  two  trading  countries  having  the 
same  kind  of  money,  the  amount  in  each,  i.  e.,  the  number  of 
pieces  or  coins,  is  such  that,  the  rate  of  circulation  being  what 
it  is,  and  the  demand  for  money  what  it  is,  the  scale  of  prices 
in  the  two  countries  precisely  corresponds,  cost  of  transpor- 
tation of  goods  being,  for  the  purposes  of  the  illustration,  left 
out  of  account.  Now  let  us  suppose  that,  all  other  elements 
of  the  case  remaining  unchanged,  the  amount  of  money  in 


THE  MONEY  MOVEMENT.  133 

one  of  these  countries,  A,  is  suddenly  and  largely  increased, 
say,  by  the  discovery  of  treasure  or  by  the  opening  of  new 
mines.  The  supply  of  money  having  thus  been  increased,  the 
value  of  money,  as  we  have  seen,  must  decline,  that  is,  prices 
must  rise.  A  given  amount  of  money  will  purchase  less  of 
other  things  than  before,  which  is  equivalent  to  saying  that 
other  things  will  purchase  more  of  money. 

Now,  if  goods  will  purchase  more  money  in  that  country, 
the  owners  of  goods  in  the  other  trading  country,  B,  will  at 
once  feel  themselves  impelled  by  self-interest  to  send  their 
stock  thither,  to  secure  the  benefit  of  the  higher  prices.  Hav- 
ing exchanged  goods  for  money  in  A,  they  will  bring  the 
money  back  to  their  own  country,  B.  Why  not  invest  the 
money  in  the  country  where  they  sold  the  goods  ?  Because, 
by  the  conditions  assumed,  though  A  is,  as  they  have  'found, 
an  excellent  market  to  sell  in,  since  prices  are  high,  it  is,  from 
that  very  fact,  a  bad  market  to  buy  in. 

177.  And  while  all  owners  of  goods  in  B  are  hurrying  to 
get  their  goods  to  A,  in  order  to  take  advantage  of  the  higher 
prices  prevailing  there,  every  holder  of  money  in  A  is  equally 
impelled  .to  get  his  money  as  soon  as  possible  to  B,  in  order  to 
take  advantage  of  the  lower  prices  there.     Where  all  parties 
are  so  fully  agreed,  the  thing  is  likely  to  be  done  quickly. 
Money  flows  from  A  to  B  until  the  equilibrium  which  was  dis- 
turbed has  been    restored,  that  is,  until  the  general  scale  of 
prices   is  the  same   in  both  countries.     After  this,  the   two 
countries  will  continue  to  trade  as  before  ;  but  each  will  keep 
its  own  money.     A  will  pay  for  the  cotton,  rice  and  sugar  of 
B  with  its  own  wheat,  lumber,  coal  and  ice. 

178.  The  Money  Movement  Automatic — It  will    be    ob- 
served that  the  movement  of  money  which  has  been  described 
was  not  due  to  any  one   discovering  that  A  had  more  money 
than  it  needed,  or  than  its  proportional  share.     No  statistician 
or  banker  announced  this  result  after  computing  the  demand 
for  money  and  the  supply  of  money  in  that  country.     The 
exchanges   which    restored    the  equilibrium   of    prices  were 
due  wholly  to  the  action  of  individuals,  moved  by  a  view  of 
their  own  interest.     Not  one  of  them  cared,  perhaps  not  one 


134  POLITICAL  ECONOMY. 

of  them  knew,  whether  money  was  in  excess  in  A,  or  not,  but 
each,  finding  that  by  sending  goods  from  B  to  A,  or  money 
from  A  to  B,  he  could  secure  a  profit,  contributed  to  the 
result. 

We  have  seen,  in  speaking  of  retail  exchanges  (par.  149),  that 
a  great  amount  of  resistance  is  experienced  in  the  operation 
of  what  are  called  "  the  laws  of  trade,"  and  we  s"hall  have 
occasion  to  note,  when  we  come  to  speak  of  wages,  that  the 
laborer's  inertia,  ignorance  and  poverty  defer  greatly,  and 
even  sometimes  defeat  altogether,  the  movements  from  place 
to  place,  or  from  occupation  to  occupation,  which  is  required 
to  secure  his  interests. 

While  the  actual  freedom  and  fullness  of  movement  can,  in 
no  department  of  economic  activity,  reach  the  theoretical 
maximum,  the  result  is  more  nearly  obtained  in  the  depart- 
ment under  consideration  than  in  any  other.  The  persons 
who  ship  goods  or  money,  in  consequence  of  excess  or  defi- 
ciency in  the  money  supply,  being  merchants  of  large  experi- 
ence and  ample  means,  kept  fully  advised  of  the  state  of  the 
markets  by  weekly  letters  and  price-currents,  and  in  later 
years,  by  information  received  daily,  and  now,  even  by  hourly 
reports,  through  land  telegraphs  and  ocean  cables,  the  actual 
here  closely  approximates  the  theoretical  readiness  and  com- 
pleteness of  movement.  At  the  same  time,  it  is  easy  to  exag- 
gerate even  that  readiness  and  completeness. 

179.  Picking  or  Selecting  the  Coin.— We  have  seen  that 
any  local  excess  of  money,  as  between  one  country  and 
another,  immediately  sets  in  motion  forces  which  tend  to 
restore  the  equilibrium.  The  local  excess  of  money  also  pro- 
motes the  use  of  the  precious  metals  in  the  industrial  and 
decorative  arts.  This  application  of  the  metals,  always  con- 
siderable, may  be  readily  increased  through  a  reduction  in 
their  value.  As  less  and  less  of  other  things,  wheat,  iron  or 
cotton,  or  of  labor  which  produces  all  these  things,  will  pur- 
chase a  given  amount  of  gold  and  silver,  more  gold  and  silver 
go  to  the  melting  pot. 

In  the  case  of  exportation,  or  the  melting  of  coined  money, 
<lue  to  local  excess,  what  determines  the  selection  of  the  coins 


SELECTING    THE   COIN.  135 

to  be  exported  or  melted  ?  Is  it  purely  a  matter  of  chance,  or 
is  it  controlled  by  the  comparative  proximity  of  coins  to  the 
place  of  exportation  or  the  seat  of  the  manufacture  of  jewelry, 
or  of  dental  goods,  or  of  photographers'  supplies  ;  or  does 
some  distinct  economic  force  enter  to  decide  that  certain  coins 
shall  go  and  others  stay  ?  Let  us  inquire. 

180.  Irregularities  in  the  Coin. — In  the  process  of  coin- 
ing, it  is  inevitable,  notwithstanding  the  truly  admirable 
science  and  skill  applied  to  this  art,  that  differences  should 
exist  between  coins.  The  -mints  of  some  countries  do  their 
work  much  more  exactly  than  others  ;  *  but  the  best  mints  can 
not  turn  out  pieces  absolutely  uniform  in  fineness  and  weight. 
A  certain  range  of  variation  must  be  allowed,  and  this  is  gen- 
erally formulated  by  law,  and  is  known  as  the  "  tolerance  "  of 
the  mint. 

Even  were  all  coins  issired  of  exact  uniformity,  the  wide 
difference  in  usage  would  soon  make  an  appreciable  difference 
in  their  weight.  Some  go  early  into  hordes  or  deposits  ;  others 
are  worn  down  by  almost  continuous  circulation  ;  others  still 
are  dealt  with  illegitimately  by  clipping,  punching,  and  "  sweat- 
ting,"  till  a  considerable  portion  of  their  substance  disap- 
pears.f 


*  Three  gold  coins,  the  Russian  Imperials,  the  French  Napoleons,  and 
the  American  Eagles,  are  bought  by  the  Bank  of  England  without  re- 
melting.  The  United  States  Mint  turns  out  the  finest  gold  coin  of  the 
world  ;  the  Russian  Mint  the  next  best.  The  mint  of  France  was,  fifty 
years  ago,  charged  with  grave  errors,  all  on  one  side,  viz.,  in  favor  of 
the  minters  ;  but  that  mint  is  now  of 'high  authority.  The  mint  of  Great 
Britain  has  until  recently  been  badly  managed  and  has  done  poor  work, 
in  comparison  with  the  others  named,  not  out  of  any  dishonest  intention, 
or  lack  of  mechanical  skill,  but  from  adherence  to  old  fashions  and  anti- 
quated machinery.  Mr.  Ernest  Seyd  and  Prof.  Jevons  concurred  some 
years  ago  in  a  very  unfavorable  criticism  of  the  establishment  on  Tower 
Hill.  More  recently  there  has  been  improvement. 

f  Prof.  Jevons  estimated  the  proportion  of  "  light"  sovereigns  in  En- 
gland, that  is,  of  sovereigns  reduced  below  the  legal  standard  for  circula- 
tion, to  be  30  per  cent. ,  the  proportion  in  some  agricultural  districts  ris- 
ing to  44  per  cent. 


I36  POLITICAL  ECONOMY. 

If  now,  with  a  body  of  coin  of  unequal  value,  a  demand  for 
the  money-metal  arises,  for  export  or  for  use  in  the  arts,  the 
process  of  picking  or  selecting  coin  will  at  once  begin.  All 
merchants  and  bankers  dealing  largely  in  coin  will  lay  by 
those  of  full  or  nearly  full  weight,  and  throw  the  lighter  speci- 
mens back  into  circulation. 

This  process  of  picking  or  selecting  coin,  begins  early  in  the 
history  of  such  a  demand  as  has  been  indicated,  and  proceeds 
steadily  as  long  as  that  demand  lasts.  The  operation  costs 
practically  nothing,  and  the  profit,  where  great  numbers  of 
coins  are  daily  handled,  is  large  and  certain.  Clerks  and 
cashiers  become  so  expert  that  they  can  tell  light  coins  by  the 
touch,  while,  if  doubt  exists,  a  pair  of  adjusted  scales  will  in 
an  instant  decide  the  question. 

181.  Gresham's  Law. — The  observation  of  this  process  of 
picking  or  selecting  coin  has  led  to  the  statement  of  the  econ- 
omic theorem,  known  as  Gresham's  Law,*  viz.,   that  "bad 
money  always  drives  out  good  money." 

Thus  baldly  stated,  as  in  most  treatises  it  is,  the  theorem  is 
false.  That  effect  will  not  be  produced  unless  the  body  of 
money  thus  composed  of  heavy  and  of  light  coins,  is  itself  in 
excess  of  the  needs  of  the  community,  as  determined  by  the 
law  of  the  territorial  distribution  of  money,  which  has  been 
stated.  In  a  country  in  which  money  is,  according  to  this 
standard,  deficient,  a  light  coin  may  have,  by  reason  of  that 
deficiency,  a  higher  purchasing  power  than  a  heavy  coin  in  a 
country  in  which  money  is  in  excess.f 

182.  The  Value  Denominator,  usually  called  the  Measure 


*  From  Sir  Thomas  Gresham,  founder  of  the  Royal  Exchange  of 
London.  Died  1579. 

f  Mr.  Ricardo  clearly  expressed  this  necessary  qualification  of  Gres- 
ham's Theorem,  but,  in  doing  so,  has  been  followed  by  few  writers.  It 
is,  he  says,  "a  mistaken  theory  to  suppose  that  guineas  of  5  dwt.  8 
grains,  can  not  circulate  with  guineas  of  5  dwt.,  or  less.  As  they  might 
be  in  such  limited  quantities  that  both  the  one  and  the  other  might 
actually  pass  in  currency  for  a  value  equal  to  5  dwt.  10  grains,  there 
would  be  no  temptation  to  withdraw  either  from  circulation  ;  there 
would  be  a  real  profit  in  retaining  them." 


THE    VALUE  DENOMINATOR.  137 

of  Value. —Thus  far  we  have  spoken  of  but  one  function  of 
money,  that  of  the  Medium  of  Exchange,  and  we  have  writ- 
ten as  if  there  were  but  one.  This  has  been  for  the  purpose 
of  fixing  the  reader's  attention  strongly  on  the  work  of 
money,  as  the  medium  of  exchange. 

In  addition  to  this  function  of  money,  however,  nearly  all 
economists  are  agreed  in  recognizing  another  independent  and 
co-ordinate  function  of  money,  viz.,  as  a  "  Measure  of  Value." 
"  A  second  difficulty,"  says  Professor  Jevons,  "  arises  in  bar- 
ter. At  what  rate  is  any  exchange  to  be  made  ?  If  a  certain 
quantity  of  beef  be  given  for  a  certain  quantity  of  corn,  and, 
in  a  like  manner  corn  be  exchanged  for  cheese,  and  cheese  for 
eggs,  and  eggs  for  flax,  and  so  on,  still  the  question  will  arise 
— how  much  beef  for  how  much  flax,  or  how  much  of  any  one 
commodity  for  a  given  quantity  of  another  ?  In  a  state  of 
barter,  the  price  current  list  would  be  a  most  complicated  doc- 
ument, for  each  commodity  would  have  to  be  quoted  in  terms 
of  every  other  commodity,  or  else  complicated  rule-of -three 
sums  would  be  necessary.  Between  100  articles  there  must 
exist  no  less  than  4950  possible  ratios  of  exchange.  All  such 
trouble  is  avoided  if  any  one  commodity  be  chosen,  and  its 
ratio  of  exchange  with  each  commodity  be  quoted.  Knowing 
how  much  corn  is  to  be  bought  for  a  pound  of  silver,  and, 
also,  how  much  flax  for  the  same  quantity  of  silver,  we  learn 
without  further  trouble  how  much  corn  exchanges  for  so  much 
flax.  The  chosen  commodity  becomes  a  common  denominator 
or  common  measure  of  value,  in  terms  of  which  we  estimate 
the  value  of  all  other  goods,  so  that  their  values  become 
capable  of  the  most  easy  comparison." 

183.— An  Incidental  and  Subordinate  Function. — Admit- 
ting the  importance  of  having  a  value-denominator,  in  which 
the  prices  of  all  articles  shall  be  expressed,  we  can  not  admit 
that  this  constitutes  a  separate  and  independent  function  of 
money,  since  it  is  evident  that  gold  or  silver,  or  any  other 
article,  can  only  serve  as  a  value-denominator  by  and  through 
being  used  as  the  medium  of  exchange.*  It  is  only  because 

*  Hence  we  see  the  error  of  Prof.  Bowen's  statement :  "  We  can  do 
without  money  as  a  medium  of  exchange,  and  can  even  barter  commod- 


138  POLITICAL  ECONOMY. 

silver,  for  instance,  is,  in  fact  successively  exchanged  against 
all  the  articles  in  the  market  that  the  respective  values  of  these 
articles,  in  terms  of  silver,  become  known,  and  that  it,  hence, 
becomes  possible  to  make  up  the  price-current  with  100  speci- 
fications, e.  g.,  and  not  with  4950.  Instead  of  this  being  an 
independent  and  co-ordinate  function  of  money,  therefore,  it 
is  merely  an  advantage  resulting  from  the  use  of  money  as 
the  medium  of  exchange.  It  is,  at  most,  an  incidental  and 
subordinate  function.  The  better  statement,  still,  would  be 
that  money  serves  as 
I.  The  Medium  of  Exchange: 

(a)  Dispensing  with   the  double    coincidence  required   in 
barter. 

(b)  Furnishing  a  value-denominator. 

184.— II.  The  Standard  of  Deferred  Payments,  usually 
Called  the  Standard  of  Value.— We  have  seen  that  it  is  of 
the  essence  of  a  sale  for  money,  that  the  producer,  or  whoever 
at  the  time  stands  in  the  place  of  the  producer,  parts  with  his 
product,  receiving  therefor  something  which  he  does  not 
expect  personally  to  consume.  His  reason  for  receiving  this 
article  in  exchange  for  his  product  is  that  with  it  he  expects 
to  obtain,  in  time  and  place  and  amount  most  suitable  to  his 
convenience,  that  which  he  shall  desire  to  consume.  In  other 
words,  he,  by  the  act  of  exchange,  defers  his  own  consump- 
tion of  the  equivalent  of  his  product,  taking  a  piece  or  pieces 
of  money,  as  a  sort  of  certificate  or  pledge  that  he  shall  receive 
such  an  equivalent  whenever  he  gets  ready  to  enjoy  it.  It 
was  in  this  view  of  money  that  Adam  Smith  said  :  "  A  guinea 
may  be  considered  as  a  bill  for  a  certain  quantity  of  necessa- 
ries or  conveniences  upon  all  the  tradesmen  of  the  neighbor- 
hood." * 

ities  for  other  commodities  without  the  use  of  any  medium.  But  we 
can  not  do  without  money  as  a  common  standard  or  measure  of  value." 
Were  we  to  do  without  money  in  the  former  capacity,  we  should  per- 
force have  to  do  without  it  in  the  latter,  inasmuch  as  it  is  only  by  being 
actually  used  as  a  medium  of  exchange,  that  the  power  of  money  to  pur- 
chase each  commodity  by  turns  became  known. 

*  Prof.  Senior  calls  money  "  Abstract  Wealth." 


SALES    ON   CREDIT.  139 

It  will  appear  that,  looking  toward  the  satisfaction  of  the 
producer's  wants,  a  sale  for  money  is  only  half  a  transaction. 
He  sells  his  product  for  money,  and  must,  in  turn,  sell,  so  to 
speak,  his  money  for  the  product  of  others,  such  as  he  may 
desire  personally  to  consume.  To  do  this,  however,  though  a 
two-fold  transaction,  requires  far  less  of  time  and  labor,  and 
involves  far  less  liability  to  ultimate  disappointment,  than  the 
attempt  to  secure  the  "double  coincidence  of  wants  and  of 
possessions,"  spoken  of  in  par.  161. 

185.  Money  a  Pledge  of  Future  Enjoyment. — But  while, 
in  the  very  act  of  a  sale  for  money,  the  producer  defers  his 
acquisition  of  the  products  of  others,  the  question,  when  that 
acquisition  shall  be  realized,  remains  for  himself  alone  to  answer. 
He  has  the  money,  and  whenever  he  chooses  to  step  into  a 
shop  and  lay  it  down  upon  the  counter,  he  may  take  his  equiv- 
alent then  and  there,  whether  in  meat  or  flour  or  groceries  or 
clothes  or  tools  for  his  trade. 

186.  Sales  on  Credit. — We  are  now  to  contemplate  trans- 
actions of  a  different  character,  which  give  rise  to  a  new 
function  of  money,  viz.,   exchanges  where  the  equivalent  is 
not,  at  the  time,  received  by  the  seller  of  goods  ;  but  where 
future  payment  is  promised.     These  transactions  are  known 
as  Sales  on  Credit,  because  the  willingness  of  the  producer  to 
part  with  his  goods,  without  at  the  time  receiving  an  equiv- 
alent, depends  upon  the  credit  of  the  purchaser,  or  the  degree 
of  confidence  attaching  to  his  word  or  his  bond.    In  such  a  case, 
the  purchaser's  character  for  honesty,  his  responsibility,  as 
measured  by  the  amount  of  his  possessions,  and  the  efficiency 
of  the  law  in  enforcing  payments,  all  must  be  taken  into 
account. 

187.  The  vast  extension  of  credit-sales  under  the  modern 
organization  of  trade,  makes  a  new  and  very  important  require- 
ment upon  that  article  which  is  to  be  used  as  money,  viz.,  that, 
in  addition  to  being  conveniently  portable,  not  liable  to  deterio- 
ration or  accidental  injury,  easily  subdivided,  etc.,  it  shall  be 
reasonably  stable  in  value.     Where  a  man  takes  money  in  his 
hand  as  the  equivalent  of  the  product  sold,  which  we  call  a  sale 
for  cash,  he  has  no  anxiety  on  this  account.     He  may  exchange 


140  POLITICAL  ECONOMY. 

his  money  for  goods  the  same  day.  If  not,  it  is  because  he 
does  not  choose  to  do  so.  The  matter  rests  with  him.  But  if  a 
man  is  to  forbear  payment  for  a  considerable  time,  it  becomes 
of  great  importance  that  he  should  know  what  that  which  he 
is  to  receive  at  a  distant  date  will  be  worth  to  him  when  he 
gets  it.  On  the  day  of  the  sale,  the  money  which  is  stipulated 
is  worth  the  goods  ;  otherwise,  the  sale  wrould  not  have 
taken  place.  On  the  day  of  payment,  the  money  may  be  con- 
ceivably worth  twice  the  goods,  or  only  half  the  goods.  The 
ri.sk  of  some  undeserved  loss,  the  chances  of  some  unearned 
gain,  are  inherent  in  the  nature  of  sales  on  credit.  "Whether 
that  risk  of  loss  or  chance  of  gain  shall  be  great  or  small,  will 
depend  on  the  degree  of  stability  which  attaches  to  the  value 
of  the  article  used  in  that  community,  during  that  period,  as 
money. 

It  is  evident  that  articles  which  might  be  equally  well 
fitted  for  use  as  money  in  sales  for  cash,  that  is,  which  might 
be  otherwise  equally  well  fitted  to  serve  as  the  medium  of 
exchange,  may  be  very  differently  qualified  to  serve  as  what 
we  call  the  Standard  of  Deferred  Payments. 

188.  The  Grains  and  the  Metals.— Thus,  if  we  compare 
the  grains  and  the  metals,  we  note  that  the  former  are  quickly 
consumed,  the  greater  part  in  the  first  year,  all  within  the  sec- 
ond year  ;  while  the  latter  last,  even  in  active  use,  many 
years.  The  average  "  life  "  of  iron  may  perhaps  be  stated  at 
fifteen  to  twenty  years  ;  the  life  of  copper  is  much  longer, 
and  that  of  gold  and  silver  covers  several  human  generations. 

From  these  facts  it  results  that,  if  the  production  of  any 
grain,  e.  g.,  corn  or  wheat,  falls  off  considerably,  in  any  year, 
through  excess  or  deficiency  of  moisture  or  heat,  the  value  of 
that  grain  will  rise  rapidly,  it  may  be  to  an  inordinate  height. 
The  production  of  gold  or  silver,  and,  in  a  lower  degree,  of 
copper  or  iron,  might  be  sensibly  diminished  for  years  with- 
out greatly  affecting  the  quantity  and,  by  consequence,  the 
value  of  the  existing  stock. 

Now,  if  wheat  were  to  be  used  as  money,  it  would  not 
infrequently  happen  that,  in  the  irregular  alternation  of  good 
and  bad  harvests,  a  producer  selling  his  goods  on  one  or  two 


THE   STANDARD   OF  DEFERRED   PA  YMENTS.        141 

years'  credit,  would,  when  the  payment  came  to  be  mado. 
receive  one-half  as  much  more,  or  even  twice  as  much  in  value, 
as  he  would  have  received  had  the  payment  been  made  at  the 
time  of  the  sale  ;  or  he  might  receive  only  two-thirds  or 
even  only  one-half  what  his  goods  were  then  worth.  Nor 
could  the  injuries  which  the  producer  might  suffer  by  receiv- 
ing less  than  the  value  of  the  goods  he  parted  with,  be  trusted 
to  be  compensated  by  the  unearned  gains  he  might  make  at 
other  times.  So  irregular  and  unaccountable  is  the  occurrence 
of  bad  seasons,  that  one  man  might  have  nearly  all  bad  luck 
and  another  nearly  all  good  luck.  The  former  might  be  ruined, 
bankrupted,  and  driven  out  of  his  shop  or  farm,  before  the  tide 
turned  in  his  favor.  As  many  as  seven  successive  bad  seasons 
have  been  known  in  England.  On  the  other  hand,  the  metals 
are  not  subject  to  frequent  value  variations  of  great  extent, 
though  liable  to  incessant  oscillations  of.,  moderate  range. 
Gold  and  silver,  especially,  on  account  of  their  high  degree  of 
durability,  are  almost  exempt  from  the  influence  of  the  pro- 
duction of  a  single  year. 

189,  Fluctuations  in  the  Value  of  the  Precious  Metals. — 
But  while  the  precious  metals  are  thus  almost  a  perfect "  stan- 
dard of  deferred  payments,"  from  one  year  to  another,  they 
are  yet  subject  to  great  periodic  variations  from  generation  to 
generation  and  from  century  to  century.  The  production  of 
the  precious  metals  is  of  the  most  spasmodic  character.  At 
times,  a  flood  of  gold,  or  of  silver,  or  of  both,  has  poured  from 
newly-opened  mines,  as  after  the  discovery  of  the  mines  of 
Potosi  in  1545,  and  of  the  mines  of  California  almost  coinci- 
dently  with  those  of  Australia,  in  1849-51  ;  at  times,  on  the 
other  hand,  mining  industry  has  almost  wholly  ceased,  either 
from  the  exhaustion  of  known  deposits,  or  as  the  result  of 
war  or  civil  disturbance.  Such  a  cessation  of  mining  industry 
followed  the  invasion  of  the  Roman  Empire  by  the  Teutonic 
tribes.  The  series  of  revolutions  and  insurrections  in  the 
Spanish  American  States,  beginning  in  1809,  destroyed  the 
mining  machinery,  scattered  the  mining  populations,  and 
Closed  the  mines  of  regions  which  had  previously  been  among 
the  most  prolific  sources  of  the  world's  supply  of  metallic 


142  POLITICAL  ECONOMY. 

money.  In  agriculture,  however,  while  incessant  fluctuations 
in  the  supply  of  the  grains,  even  those  most  largely  and 
widely  planted,  result  from  the  mutability  of  the  climate,  the 
changes  from  generation  to  generation,  and  from  century  to 
century,  are  not  so  far  reaching. 

The  vast  breadth  of  arable  land  of  reasonably  uniform  qual- 
ity ;  the  simplicity  of  the  processes  of  agriculture,  and  the 
wide  diffusion  of  the  art  of  tillage  ;  the  comparative  immunity 
of  the  soil  amid  ravages  which  greatly  impair,  perhaps  perma- 
nently cripple,  manufacturing,  and  in  an  even  greater  degreer 
mining  industry  ;  the  limited  applicability  of  the  principle  of 
the  division  of  labor  to  agriculture  and  the  relative  inefficiency 
of  machinery  in  its  operations  :  these  causes  combine  to  ren- 
der bread-corn,  in  truth,  what  Francis  Horner  pronounced  it 
to  be,  "  the  real  and  paramount  standard  of  all  values." 

190.  Corn  Rents. — The  superior  stability  of  value  of  the 
cereals,  through  long  periods  of  time,  has  led  to  the  sugges- 
tion that,  in  the  case  of  contracts  extending  over  considerable 
terms  of  years,  grain  should  be  adopted  as  the  standard  for 
determining  the  obligations  of  the  debtor,  the  rights  of  the 
creditor.     To  a  limited  extent  this  has  been  done  ;  but  the 
tendency  to  express  the  consideration  of  all  sales  in  terms  of 
that  which  is  the  cui'rent  money  of  daily  use  in  the  commu- 
nity is  so  strong  that  few  persons,  even  of  those  who  are  act- 
ing as  trustees,  take  the  trouble  thus  to  guard  the  interests 
they  represent.     The  manifest  convenience  of  having  that  for 
the  standard  of  deferred  payments  which  is  also  the  medium 
of  current  exchanges,  the  indolence  and  want  of  initiative  in 
the  mass  of  mankind,  perhaps,  also,  a  superstitious  regard  for 
the  precious  metals,  combine  to  withstand  the  reasons  which 
urge  the  expression  of  rents,  interest  and  annuities  in  terms 
of  some  leading  grain,  in  the  case  of  long  leases,  permanent 
loans  and  fixed  charges  upon  land. 

191.  Multiple  or  Tabular  Standard. — It  has  even  been 
proposed  to  go  further,  in  the  effort  to  avoid  those  undeserved 
losses  which  result  to  debtors  or  to  creditors,  from  changes 
which  take  place  in  the  value  of  even  the  precious  metals 
through  long  periods  of  time.     The  scheme  for  a  multiple 


DEBASED   COIN.  143 

standard  or  tabular  standard,  to  form  which  a  great  number 
of  ai'ticles  should  be  joined  together,  in  order  that  their  indi- 
vidual value-variations  may  offset  each  other,  was,  early  in 
the  century,  suggested  by  writers  in  England  and  Germany, 
and  has  more  recently  been  advocated  by  Prof.  Jevons  of  the 
former,  and  by  Prof.  Roscher  ^of  the  latter  country.  This 
proposed  scheme  will  be  briefly  discussed  in  Part  VI. 


CHAPTER  IV. 

MONEY    AND    ITS     VALUE — CONTINUED — DEBASED     COIN  :    SEIG- 

NIOBAGE. 

192.  Debased   Coin. — We  now  approach  a  question  which 
should  be  decided  entirely  upon  the  principles  regulating  the 
value  of  money  already  laid  down,  yet  which  is  the  subject  of 
so  much  misconception,  which  has  been  so  covered-over  with 
false  reasoning  and  which  is  so  sure  to  arouse  prejudice  and  pas- 
sion, that  it  is  needful  for  the  teacher  to  accompany  the  student 
over  the  ground,  and,  if  possible,  save  him  from  the  pitfalls 
and  quagmires  into  which   trained  logicians    and    practiced 
writers  have  fallen.     Prof.  Jevons  has  remarked  that  a  kind 
of  intellectual  vertigo  attacks  all  who  treat  this  fatal  theme  of 
money  ;  and  we  have  now  reached  the  point  where  most  peo- 
ple lose  their  heads.     The  beginner  ought  not  to  be  left  to 
find  his  way  here  alone,  even  if  he  has  already  been  provided 
with  the  chart  and  compass  to  guide  his  steps. 

193.  Seigniorage. — The  most  safe  and  convenient  entrance 
to  this  land  of  gins,  and  snares,  and  griefs,  is  through  seignior- 
age.    That  term  has  long  been  applied  to  the  amount  of  metal 
abstracted  by  government,  or  the  lord,  the  seignior,  before 
coinage.     Seigniorage  may  be  of  two  kinds,  or  rather  two 
degrees. 

1.  When  the  cost,  either  actual  or  approximate,  of  coinage 
is  taken  out,  and  thus  the  state  or  the  lord  is  reimbursed  for 
the  expense. 


144  POLITICAL  ECONOMY. 

2.  When  more  metal  than  is  necessary  to  repay  the  expense 
of  coinage  is  abstracted  ;  and  thus  the  state  or  the  lord  makes 
a  profit  by  the  coinage. 

194.  Cost  of  Coinage.— Let  us  consider  the  first.     Shall  the 
value  of  the  coin  be  computed  according  to  the  market  value 
of  the  contained  metal,  viewed  as  so  much  bullion,  or  shall 
the  cost  of  the  mintage  be  added  to  the  value  of  the  metal  V 
For  instance,  if  the  expense  of  making  the  coin  called  a  dol- 
lar be  one  cent,   shall    the    coin  contain  a    hundred  cents* 
worth  of  gold  or  silver,  or  shall  it  contain  only  ninety-nine 
cents'  worth,  and  the  cost  of  the  coinage  be  added  to  make  up 
the  dollar  ? 

On  this  point  the  opinions  of  economists  and  the  practice 
of  governments  differ.  Although  the  question  involved  is 
not  wholly  economic  in  its  nature,  but  is  in  part  matter  of 
political  and  fiscal  expediency,  we  will  here  briefly  state  the 
arguments  on  the  one  side  and  the  other. 

On  the  one  hand,  it  is  said  that  gold  and  silver,  being 
wanted  in  the  form  of  coins,  are,  for  that  reason,  worth  more 
in  coin  than  in  bullion.  Serving  an  additional  use  as  coined 
money,  they  are  the  subjects  of  a  demand  over  and  above 
what  exists  for  uncoined  bullion,  a  larger  demand  justifying 
a  higher  price. 

It  is  urged  that  there  is  no  more  reason  why  gold  in  coin 
should  not  be  valued  higher  than  gold  in  bars,  than  there  is 
why  gold  in  bars  should  not  be  valued  higher  than  gold 
imbedded  in  quartz.  Note  the  treatment  of  the  other  metals, 
it  is  said  :  Iron  is  sold  in  the  form  of  plates,  rivets,  rods,  and 
chains,  at  more  than  the  price  of  iron  in  the  pig.  In  the 
same  way,  if  gold  in  coin  costs  more,  and  is  more  useful  than 
in  ingots,  those  who  want  it  in  the  form  of  coin,  and  not  the 
whole  community,  should  pay  for  the  coinage. 

Moreover,  it  is  urged,  if  such  a  charge  be  not  made,  a  vast 
amount  of  metal  will  alternately  be  coined  and  melted  down, 
recoined,  and  again  melted.  A  seigniorage  charge  will  put  a 
premium  upon  the  exportation  or  melting  of  coin  so  that  bul- 
lion will  be  taken  instead. 

195.  Gratuitous  Coinage. — It  was  in  this  view  that  Dud- 


SEIGNIORAGE.  145 

ley  North  called  gratuitous  coinage  *  "  a  perpetual  motion 
found  out,  whereby  to  melt  and  coin,  without  ceasing,  and  so 
feed  goldsmiths  and  coiners  at  the  public  charge." 

In  the  face  of  these  considerations,  however,  some  of  the 
greatest  commercial  nations,  England  foremost  among  them, 
have  maintained  gratuitous  coinage.  Nor  is  this  course 
wholly  without  economic  justification. 

It  is  said  that,  while  the  expense  of  equipping,  officering,  and 
operating  a  mint  is  large,  the  difference  in  expense  caused  by 
minting  more  or  fewer  coins,  is  very  small.  For  this,  it  is 
argued,  the  country  establishing  gratuitous  coinage  is  com- 
pensated by  the  instantaneousness  with  which  the  export  of 
gold  follows  the  slightest  accumulation  in  excess  of  the  wants 
of  trade. 

196.  Seigniorage  in  Excess  of  Cost  of  Coinage — So  much 
for  seigniorage  which  only  covers  the  cost  -of  coinage. f  We 

*  The  distinction  between  gratuitous  coinage  and  free  coinage,  is  not 
sufficiently  observed.  Where  no  seigniorage  charge  is  made,  but  the 
coin  contains  the  full  amount  of  bullion  which  corresponds  to  its  mint 
value,  *.  e.,  when  the  dollar  contains  one  hundred  cents'  worth  of  metal, 
that  is  gratuitous  coinage.  Free  coinage  exists,  where  any  owner  of  bul- 
lion has  the  right  to  have  it  coined  on  the  same  terms  as  the  government, 
or  as  any  other  citizen,  whether  with  or  without  a  seigniorage  charge. 
Thus  free  coinage  exists  in  England  in  regard  to  gold.  Any  subject  can 
bring  gold,  in  any  amount,  to  the  mint  and  have  it  made  into  gold  coin  ; 
but  free  coinage  does  not  exist  with  respect  to  silver,  that  metal  being 
coined  only  in  such  amounts  as  the  Government,  through  the  Bank, 
deems  necessary  for  supplying  the  people  of  the  Kingdom  with 
"  change." 

In  the  United  States  free  coinage  exists  also  in  regard  to  gold  ;  but  the 
coinage  of  silver  is  restricted.  By  the  law  of  1878,  the  Secretary  of  the 
Treasury  must  coin  two  millions  of  silver  dollars  a  month,  and  may  coin 
four  millions,  but  no  more.  The  coinage  of  half  and  quarter  dollars,  and 
of  smaller  pieces  of  silver,  is  governed  by  the  same  principle  as  in  En- 
gland. During  the  continuance  of  the  bi-metallic  system  (Part  VI)  in  the 
states  of  the  "  Latin  Union"  (France,  Italy,  Belgium,  and  Switzerland), 
free  coinage  existed  in  regard  to  both  metals.  The  coinage  of  silver  is 
now  restricted  in  those  countries. 

f  M.  Chevalier  has  proposed  to  apply  the  term  Brassage  to  the  charge 
for  the  actual  cost  of  coinage. 


146  POLITICAL   ECONOMY. 

have  now  to  speak  of  mint  charges  which  exceed  that  cost, 
and  become  a  source  of  revenue  to  the  state.  In  the  old  days 
of  high  prerogative,  kings  frequently  made  their  sole  right  of 
coinage  a  means  of  profit.  In  England,  during  the  reign  of 
Edward  IV.,  the  seigniorage  on  gold  was  above  13  per  cent.  ; 
during  the  reign  of  Henry  VII.,  it  once  rose  to  16  per  cent. 
These,  however,  were  exceptional  instances  in  England.  In 
France,  in  Italy,  and  in  most  of  the  countries  of  continental 
Europe,  before  the  great  revival  of  modern  commerce,  debase- 
ment of  the  coin  was  a  favorite  resort  of  weak  or  profligate1 
monarchs.  Both  in  quantity  and  quality,  in  weight  and  in 
fineness,  the  circulating  money  was  pinched  and  robbed,  until 
the  actual  amount  of  pure  metal  bore  sometimes  a  ludicrously 
small  ratio  to  the  original  fine  contents  of  the  coin.  The  En- 
glish "  pound  "  was  once  a  pound-weight  of  silver.  The  pound 
of  standard  silver  is  now  coined  into  66,  instead  of  20  shil- 
lings. The  "pound  scots,"  of  which  we  read,  had  but  -£$  of 
its  original  weight.  The  florin  and  the  Spanish  maravedi 
were  once  pieces  of  gold.  The  former  is  now  a  piece  of 
silver  ;  the  latter  a  piece  of  copper. 

197.  What  is  the  Effect  of  Seigniorage  on  the  Purchas- 
ing Power  of  Coin  ? — On  this  subject  I  follow  Mr.  Ricardo 
without  deviation,  believing  that  he  was  the  economist  who 
most  fully  and  justly  apprehended  the  relations  of  money  to 
price  ;  and  that  departure  from  the  principles  laid  down  by 
that  great  thinker  leads  to  confusion,  misconception  and  need- 
less controversy. 

Let  us  suppose  that  a  certain  country  requires  for  the  pur- 
poses of  domestic  trade  1,000,000  pieces,  each  containing  100 
grains  of  fine  gold.  This  would  involve  the  use  of  100,000,- 
000  grains  of  gold  as  money  ;  and  a  certain  average  level  of 
prices  would  result  from  the  relation  between  this  amount  (its 
rate  of  circulation  being  assumed  constant,  for  the  purposes 
of  the  following  illustration),  and  the  demand  for  money 
arising  from  the  exchanges  actually  requiring  to  be  effected 
by  the  use  of  money. 

Now,  suppose  the  principle  of  seigniorage  to  be  introduced, 
the  sovereign,  out  of  every  hundred  grains  brought  to  the 


EXCESSIVE  ISSUES.  147 

mint,  taking  one  to  repay  the  actual  cost  of  coinage,  putting 
into  circulation  1,000,000  pieces  of  99  grains  each,  and  plac- 
ing 1,000,000  grain's  in  his  storehouse  as  treasure,  or  causing 
it  to  be  manufactured  into  plate  or  ornament.  There  are  now 
only  99,000,000  grains  of  gold  in  circulation,  but  the  same 
number  of  pieces,  each  of  the  same  "mint-value,"  i.  e.,  100 
grains. 

Will  each  piece  now  purchase  as  much  of  other  commodi- 
ti  ;s  as  before,  or  less  ? 

I  answer,  as  much.  There  is  the  same  demand  for  pieces 
for  the  purposes  of  exchange  ;  there  is  the  same  supply ;  the 
s"me  prices  must  result. 

But  suppose  the  sovereign  proceeds  further,  and  takes,  not 
one  grain,  but  ten,  from  every  hundred,  issuing  1,000,000 
pieces  of  only  90  grains  each.  Will  the  purchasing  power  of 
each  piece  be  affected  ?  Not  in  the  least.  There  is  the  same 
demand  for  pieces,  the  same  supply.  People  still  want  pieces 
of  money  ;  can  only  get  them  by  giving  commodities  for 
them  ;  have  as  many  commodities  and  no  fewer  to  give  ;  and 
there  are  just  as  many  pieces  and  no  more  to  be  obtained  in 
this  way. 

198.  Excessive  Issues. — But  let  us  take  a  step  in  a  differ- 
ent direction.     Let  us  suppose  that  the  sovereign,  instead  of 
placing  in  his  treasury  the  10,000,000  grains  which  he  took 
under  his  right  of  seigniorage,  coins  this  gold  also  into  pieces 
of  90  grains  each,  and  pays  them  out  for  personal  or  public 
expenses.      What  will  be  the  result  ?      Depreciation   will  at 
-once  begin.     The  90,000,000  grains,  when  coined  into  the  same 
number  of  pieces  of  the  same  official  (mint)  denomination  as 
the    100,000,000    had   been,    retained    the    same    purchasing 
power  ;  but  when  the   100,000,000  are  coined  into   a  larger 
number  of  pieces,  the  purchasing  power  of  each  piece  at  once 
falls. 

199.  Bieardo's  Statement.— "  While  the  state  alone  coins," 
says  Mr.  Ricardo,  "there  can  be  no  limit  to  this  charge  of 
seigniorage  ;  for,  by  limiting  the  quantity  of  coin,  it  can  be 
raised  to  any  conceivable  value." 

"  On  the  same  principle,"  he  remarks,  "  viz.,  by  a  limitation 


148  POLITICAL  ECONOMY. 

of  quantity,  a  debased  coin  would  circulate  at  the  value  it 
should  bear  if  it  were  of  legal  weight  and  fineness,  and  not  at 
the  value  of  the  quantity  of  metal  it  actually  contained." 

"  In  the  history  of  the  British  coinage,"  he  continues,  "  we 
find,  accordingly,  that  the  currency  was  never  depreciated  in 
the  same  proportion  that  it  was  debased,  the  reason  for  which 
was  that  it  was  never  increased  in  quantity,  in  proportion  to 
its  diminished  intrinsic  value." 

Mr.  Ricardo  did  not  flinch  from  the  assumption  of  a  seig- 
niorage of  50  per  cent.  "There  can,"  he  asserted,  "exist  no 
depreciation  of  money,  but  from  excess.  However  debased  a 
coinage  may  become,  it  will  preserve  its  mint  value  ;  that  is 
to  say,  it  will  pass  in  circulation  for  the  intrinsic  value  of  the 
bullion  which  it  ought  to  contain,  provided  it  be  not  in  too 
great  abundance." 

This  doctrine,  which  has  proved  "  a  hard  saying  "  to  many 
economists,  a  stumbling-block  and  a  rock  of  offense  to  many 
readers,  is,  it  will  be  observed,  merely  the  rigorous,  courageous 
application  of  the  principle  that  the  value  of  money  is  determ- 
ined solely  by  the  relation  between  demand  and  supply.  I 
believe  it  to  be  the  true  doctrine  of  monetary  circulation. 

It  is  not  to  be  thought  that  Mr.  Ricardo  advocated  a  seig- 
niorage in  excess  of  the  cost  of  coinage.  "  The  limits  beyond 
which  a  seigniorage  can  not  be  advantageously  extended,"  he 
says,  "  are  the  actual  expenses  incurred  in  mamif  acturing  the 
coin."  The  objections  to  a  debased  coinage  are  two  :  First, 
inasmuch  as  the  mint  value  of  such  coins  is  above  the  value 
of  the  bullion  they  contain,  the  excess  of  such  coins  in  circu- 
lation may  proceed  to  a  high  degree,  producing  mischievous 
effects  upon  trade  and  industry,  before  exportation  begins, 
since,  for  use  in  foreign  lands,  the  coins  have  value  only  accord- 
ing to  the  amount  of  pure  metal  in  them.  Secondly,  the  prac- 
tice of  reducing  the  amount  of  bullion  in  the  coins  is  deemed 
to  be  a  dangerous  one,  because  there  is  no  point  at  which  we 
can  be  sure  it  will  stop.  Every  fiscal  exigency  of  the  govern- 
ment will  suggest  fresh  attacks  upon  the  integrity  of  the 
coin. 

These  objections,  the  first  of  which  alone  is  based  upon  eco- 


DISCREDIT  OF   THE   COIN.  149 

nomic  principles,  are  precisely  those  which  we  shall  see  (pars. 
441-445)offered  to  the  issue  of  inconvertible  paper  money. 

200.  The  Omitted   Proviso   to   Ricardo's  Statement.— 
There  is  one  proviso  which  should  be  attached  to  any  state- 
ment of  Mr.  Ricardo's  theorem  regarding  the  value  of  debased 
coin.     That  Mr.  Kicardo  failed  himself  thus  to  qualify  his 
proposition  "  that,  however  debased  a  coinage  may  become,  it 
will  preserve  its  mint  value,"  has  caused  much  misapprehension 
of  his  views.     The  required  proviso  has  already  been  intima- 
ted (par.  172),  when  we  were  speaking  of  causes  which  may 
diminish  the  demand  for  money. 

If  debasement  of  the  coin  be  carried  so  far  and  carried  on 
so  long  that  a  popular  reluctance  to  receive  the  money  pieces 
be  generated,  sufficient  to  cause  men  to  modify  or  limit  their 
production  in  order  to  avoid  exchanges,  or  to  cause  them  to 
encounter  the  inconveniences  of  barter  rather>than  handle  the 
distrusted  coin,  then  depreciation  may  result.  That  is.  the 
supply  of  money  will  become  excessive  through  the  blow 
inflicted  upon  the  demand  for  money.  But  this  can  happen 
on  no  other  condition  ;  and  a  popular  reluctance  to  receive 
coins  is  not  a  necessary  consequence  of  debasement.  Why  do 
men  take  money  at  all  ?  We  said,  in  first  describing  the  money 
function,  that  it  is  not  because  they  have,  at  the  time,  any 
personal  use  for  the  gold  or  silver  or  iron  or  leather,  or  paper, 
or  wood,  of  which  it  may  be  composed  ;  but  it  is  taken  as  a 
means  of  obtaining,  in  due  time  and  place,  that  which  they  do 
desire  to  consume.  Men  take  money  because  they  believe 
others  will,  in  turn,  take  it  from  them.  If  a  man  be  only 
assured  of  this,  he  has  no  reason  to  care,  in  fact  he  does  not 
care,  what  the  money  is  made  of,  what  the  coin  contains. 

20 1 .  Depreciation  not  a  Necessary  Result  of  Debasement. 
— Let  us  suppose  the  coin  of  a  country,  without  being  increased 
in  amount,  to  be  debased  three  per  cent.,  and  the  fact  to 
become  known.     The  habit  of  accepting  the  coin  is  strong  ; 
the  acquired  momentum  of   the   circulating   mass   is   great ; 
men  must  (1)  either  take  the  coins  in  exchange  for  their  prod- 
ucts,  or  (2)  they  must  cease  to  produce  ;  or  (3)  they  must 
change  their  industry  and  produce  that  which  does  not  need 


150  POLITICAL  ECONOMY. 

to  be  exchanged,  i.  e.,  that  which  they  will  themselves  con- 
sume ;  or  (4)  they  must  resort  to  barter.  Now,  any  one  of  the 
latter  courses  involves  an  initial  loss,  greater,  doubtless,  much 
greater,  than  any  possible  loss  in  receiving  coin  debased  three 
per  cent.  For  this  reason  men  continue  to  receive  the  coin, 
or,  more  properly,  they  continue  to  receive  it  without  reason- 
ing at  all  about  the  matter,  having  been  accustomed  to  take 
it  freely.  If  any  man,  more  thoughtful  than  his  fellows,  hes- 
itates to  accept  the  money  pieces,  his  doubts  vanish  on  behold- 
ing all  around  him  receiving  it  without  demur.  That  is  all 
he  needs.  If  others  will  take  the  coins  from  him,  his  own 
occasions  will,  in  turn,  be  answered.  He  does  not  want  to  eat 
the  coins,  or  to  make  them  into  jewelry,  but  to  use  them  in 
buying  the  necessaries  of  life.  If  they  will  do  that,  they  are 
good  enough  for  him.  And  so  a  full  and  free  acceptance  of 
a  debased  coinage  might  be  established,  in  spite  of  a  momen- 
tary feeling  of  reluctance,  or  even  without  such  a  feeling  arising 
at  all.  Just  this  condition  of  things  has  existed,  in  many  a 
country,  many  a  time. 

Suppose  that,  after  the  community  has  become  accustomed 
to  a  seigniorage  of  three  per  cent.,  some  exigency  of  govern- 
ment, or  the  greed  of  the  prince,  should  lead  to  a  further  equal 
debasement  of  the  coin,  making  a  total  of  six  per  cent.  In 
that  event,  either  the  habit  of  accepting  the  coin  of  the  realm 
would  maintain  the  circulation  of  the  debased  money,  or,  if 
that  circulation  were  to  be  challenged  by  popular  objection, 
then  the  question  would  be  presented  to  every  man,  as  before, 
whether  he  would  take  this  debased  coin,  or  cease  producing, 
in  whole  or  in  part,  or  change  his  industry  so  as  to  produce 
articles  which  would  not  require  to  be  exchanged,  or,  lastly,  re- 
sort to  barter.  It  might  easily  happen  that  to  do  any  one  of  the 
things  last  spoken  of  would  cost  any  producer  more  than  the 
possible  loss  by  accepting  coin  debased  three  percent,  further; 
and,  so,  a  full  and  free  circulation  of  the  debased  coin  might 
be  maintained. 

202.  And  it  is  to  be  borne  in  mind  that  this  coin  circulates 
at  its  mint-value,  not  at  a  discount  of  six  per  cent.,  or  of  any 
other  rate.  There  is  no  reason  why  the  coin  should  be  sub- 


DEPRECIA  TION.  1 5  I 

jected  to  a  discount.  Assuming,  as  we  have  done,  that  the 
habits  of  the  people  in  regard  to  production  and  trade  have 
not  been,  as  yet,  changed  by  the  debasement  of  the  coinage, 
there  are  just  as  many  goods  to  be  exchanged  as  before.  Just 
as  many  money-pieces  are,  therefore,  needed,  while  no  more 
money-pieces  are  to  be  had,  since  we  have  all  along  made  the 
condition  that  the  metal  abstracted  by  the  government  should 
not  be  put  into  new  coins. 

203.  Depreciation  Results  from  Excessive  Issues.  —  But 
now  let  us  suppose  that,  when  the  debasement  has  proceeded 
to  the  extent  of  ten  per  cent.,  government  takes  the  gold  and 
silver  it  has  abstracted,  and  issues  it  in  the  form  of  new  coin 
debased  like  the  other.     Immediately  depreciation  will  set  in. 
The  value  of  money,  like  the  value  of  any  thing  else,  is  determ- 
ined by  the  relation  between  demand  and  supply.  The  goods 
to  be   exchanged   for  money  pieces  remaining  the  same  in 
amount,  and  the  number  of  pieces  having  been  increased,  the 
purchasing  power  of  each  piece  falls. 

So  far  the  effect  is  the  same  as  in  the  case  of  an  excess  of 
full-metal  coin  ;  but,  as  depreciation  proceeds,  the  essential 
difference  between  the  two  kinds  of  money  appears.  With  an 
excess  of  full-metal  coin,  exportation  begins  at  once.  The 
country  becomes  a  good  market  to  sell  in,  a  bad  market  to  buy 
in,  both  for  the  same  reason,  viz.,  prices  are  higher  there  ; 
and  the  course  of  exchange  will  speedily  bring  in  the  remedy. 
With  debased  coin,  however,  no  outlet  is  afforded  until  the 
depreciation  reaches  the  point  when  the  90  grains  of  fine 
metal  in  the  coin  will  bring  more  abroad,  melted  down,  than 
the  coin  (though  of  the  mint-value  of  100  grains)  will  bring  at 
home.  Within  this  limit,  depreciation  may  proceed  without 
remedy. 

204.  Inflation — A    permanent  excess  of    the   circulating 
money  of  a  country,  over  that  country's  distributive  share  of 
the  money  of  the  commercial  world,  is  called  inflation.     Its 
influence   on   industry   and  trade,  and  on  the  distribution  of 
wealth,  will  be  discussed  hereafter. 


152  POLITICAL  ECONOMY. 

CHAPTER  V. 

INCONVERTIBLE    PAPER    MONEY. 

205.  In  monetary  science,  the  true  entrance  to  paper  money 
is  through  seigniorage.     If  we  have  rightly  apprehended  the 
relations  of  seigniorage   to  the  circulation  of  coin,  and   to 
prices,  we  need  have  no  difficulty  in  dealing  with  any  ques- 
tion arising  under  the  present  title. 

"  The  whole  charge  for  paper  money  may  be  considered  as 
seigniorage."  This  remark  of  Mr.  Ricardo  is  true  and  very 
significant.  We  have  seen  that  the  State  may  withhold 
from  the  coin  one  per  cent,  of  the  pure  metal,  to  cover  the 
cost  of  coinage  ;  that  it  may  withold  ten  per  cent.,  as  a  means 
of  securing  revenue  for  the  treasury  ;  that  the  State  may  go 
further  and,  by  successive  invasions  of  the  coin,  take  out  two- 
thirds  of  the  money  metal,  as  in  the  case  of  the  English  pound 
sterling,  or  all  but  three  per  cent.,  as  in  the  case  of  the  pound 
Scots  ;  that  it  may  even  go  further  still  and  substitute  copper 
for  gold,  as  in  the  case  of  the  Spanish  maravedi. 

Now  let  the  last  step  be  taken  in  the  same  direction,  and, 
instead  of  pieces  of  metal,  let  the  public  treasury  issue  pieces 
of  paper  bearing  the  names  of  the  superseded  coins,  and  we 
shall  have  a  body  of  money  governed  by  precisely  the  same 
principles,  alike  as  to  circulation  and  as  to  the  resulting  prices 
of  commodities,  as  a  debased  coinage.  Paper  money  is  monev 
upon  which  the  seigniorage  charge  is  one  hundred  per  cent. 

206.  Historical  Instances  of  Inconvertible  Paper  Money. 
— The  invention  of  paper  money,  like  many  another  great 
discovery,  is  traced  to  the  orient.     When  Marco  Polo  visited 
China  in  the  twelfth  century,  he  found  in  circulation  a  money 
consisting  of  pieces  cut  from  the  inner  bark  of  the  mulberry 
tree.     These   were   issued   "  with    as    much    solemnity   and 
authority  as  if  they  were  of  pure  gold  and  silver."     A  century 
later,  one  of  the  rulers  of  Persia  introduced  paper  money  in 
direct  imitation  of  the  Chinese,  the  imitation  extending  even 
to  devices  and  names  ;  but  the  experiment  here  was  less  fortu- 
nate than  the  Chinese  experiment,  since,  after  two  or  three 
days  of  enforced  circulation,  the  markets  were  closed,  the 


PAPER  MONEY.  153 

people  rose,  the  officials  were  massacred,  and  the  money  dis- 
appeared. A  century  later,  we  hear  of  paper  money  in 
Japan. 

It  took  the  duller- witted  races  of  Europe  some  centuries 
more  to  comprehend  the  mysteries  of  paper  money ;  and 
meanwhile  princes  had  to  content  themselves,  when  hard-up, 
\vith  operating  upon  the  coin,  swearing  their  coiners  not  to 
divulge  the  secrets  of  the  mint,  and  juggling  their  people  just 
as  far  as  the  omnipresent  scales  and  acids  of  the  banker  would 
permit.  But  when  paper  money  became  once  fairly  intro- 
duced into  Europe,  it  was,  like  some  of  those  other  inventions 
and  discoveries  referred  to,  rapidly  improved  in  its  details 
and  extended  in  its  applications. 

An  eminent  writer  on  finance,  M.  Wolowski,  claims  for  his 
native  country  of  Poland  the  proud  distinction,  as  he  regards 
it,  of  having  been  the  only  nation  in  Europe  which  has  given 
no  example  of  the  issue  of  paper  money  ;  but  it  is  to  be 
remembered  that  Poland  lost  her  independence  a  long  while 
ago.  Had  she  survived  to  the  present  time,  it  is  not  unfair  to 
believe  she  would  have  her  paper  money  history  equally  with 
the  gigantic  neighbors  who  crushed  out  her  national  life. 

Of  the  present  States  of  Europe,  all  which  border  on  the 
Mediterranean,  excepting  France  and  Italy,  have  inconvertible 
paper  money,  issued  by  government.  Russia,  though  both  a 
northern  and  a  southern  State,  casts  in  its  lot  with  the  Med- 
iterranean nations  in  this  respect.  The  northern  tier  of 
countries,  Great  Britain,  France,  Belgium,  Holland,  Germany, 
and  Scandinavia,  have  paper  money,  indeed,  but  of  that  class 
which  we  shall  describe,  under  a  subsequent  title,  as  Bank 
Money. 

207.  Characteristics  of  Inconvertible  Paper  Money.- 
The  kind  of  money  of  which  we  are  writing  may  either  be 
issui-d  originally  by  the  State,  as  in  the  case  of  the  present 
paper  money  of  most  of  the  southern  States  of  Europe  already 
mentioned  ;  as  in  the  case  of  the  "  assignats  "  and  "  mandats  " 
of  the  French  revolutionary  epoch  ;  as  in  the  the  case  of  the 
"  Continental  currency "  of  the  American  revolution,  and  of 
the  "  Greenbacks  "  and  "  Confederate  notes  "  of  the  war  of 


154  POLITICAL  ECONOMY. 

secession  ;  or,  secondly,  it  may  result  from  the  degeneration 
of  bank  money,  originally  issued  with  the  character  of  con- 
vertibility, but,  by  some  exigency  of  government  or  stress  of 
commercial  misfortune,  losing  that  character,  and  protected  in 
its  inconvertibility  by  law,  as  in  the  case  of  the  English  Bank 
money  of  the  "Restriction"  (1797 — 1821),  as  in  the  case  of 
the  notes  of  the  Bank  of  France  during  the  revolution  of  1848, 
and,  again,  during  and  after  the  war  of  1870-71,  and  as  in 
numerous  other  cases  of  minor  importance. 

Generally  speaking,  forced  circulation  is  an  attribute  of  this 
sort  of  money,  though  that  character  may  be  disguised,  espe- 
cially in  the  case  of  degenerated  bank  money,  by  one  artifice  or 
another.  For  instance,  the  money  may  not  be  made  legal 
tender,  but  all  remedy  at  law  may  be  taken  away  from  cred- 
itors who  refuse  to  receive  it. 

Paper  may  be  declared  to  be  redeemable  in  coin  ;  that  prom- 
ise may  even  be  borne  upon  the  face  of  the  paper  ;  but  if  pro- 
vision be  not  made  so  that,  in  fact,  every  holder  of  a  note  can 
obtain  coined  money  therefor  at  will,  the  paper  is  inconvertible. 
If  any  conditions  to  redemption  are  interposed,  it  isnone  the  less 
inconvertible  than  if  redemption  were  not  even  promised. 

The  pledge  of  public  lands  or  stocks  for  ultimate  payment, 
makes  no  difference,  in  this  respect.  No  paper  money  is  con- 
vertible, the  full,  immediate  and  unconditional  redemption  of 
which  is  not,  at  all  times,  within  the  choice  of  the  holder. 

208.  Is  this  Properly  Called  Money? — American  econo- 
mists have  generally  agreed  to  deny  the  title,  money,. to  such 
issues.  Indeed  it  is  as  much  as  one's  reputation  for  economic 
orthodoxy  is  worth,  to  concede  that  inconvertible  paper  may 
become  money. 

If  we  seek  a  reason  for  this  attitude  of  the  economists,  we 
find  that  it  is  because  they  deprecate  the  use  of  such  a  "  cir- 
culating medium,"  deeming  it  mischievous,  pernicious,  destruc- 
tive of  industrial  and  social  well-being.  But,  as  I  have  ven- 
tured elsewhere  to  remark,  it  would  be  as  reasonable  to  deny 
that  whisky  is  drink,  because  we  deprecate  its  use  as  drink,  as 
to  deny  that  inconvertible  notes  are  money  because  we  depre- 
cate their  use  as  money. 


AKE   GREENE  A  CKS  'MONE  Y?  155 

The  economists  have  dealt  with  the  subject  as  if  the  ques- 
tion were  necessarily  this,  money  or  not  money  ?  money  being 
assumed  to  be,  not  only  a  good  thing  in  general,  but  always 
beneficial,  in  all  relations  and  under  all  circumstances.  And, 
inasmuch  as  they  think  they  have  shown  (in  which  I  fully 
agree  with  them),  that  the  use  of  inconvertible  paper  produces 
very  injurious  effects,  they  deny  that  it  is  entitled  to  be  called 
money. 

According  to  the  views  presented  in  this  treatise,  the  sole 
test  of  money  is  the  performance  of  the  money  function.  As 
has  been  said,  that  which  does  the  money-work  is  the  money- 
thing.  If  it  does  this  work  well,  it  is  good  money  ;  if  it  does 
this  work  ill,  it  is  bad  money. 

209.  May  Paper  Money  Serve  as  the  Common  Medium  of 
Exchange  ? — About  this  there  can,  I  conceive,  be  no  doubt 
whatever.  Take  the  United  States  "Greenbacks"  of  1862  to 
1879.  Did  producers  accept  them  readily  in  full  payment  for 
goods  ?  Yes,  with  the  utmost  readiness.  Did  men  resort  to 
barter  to  avoid  the  use  of  this  medium  of  exchange  ?  No. 
Did  men  refuse  to  produce,  or  contract  their  production,  or 
modify  it,  lest  they  should  have  to  receive  those  circulating 
notes  in  payment  ?  Again,  no. 

There  never  had  been  a  period  in  our  history  when  the 
division  of  labor  was  carried  further  ;  when  the  differentia- 
tion of  industry  and  the  diversification  of  production  went  on 
more  rapidly.  This  is  the  sure  test  of  the  performance  of  the 
money  function.  The  differentiation  of  industry  and  the 
diversification  of  production  involve  increasingly  the  use  of 
money.  Whenever  production  is  being  enlarged  and  diver- 
sified, there,  without  any  question,  something  is  acting  suc- 
cessfully as  the  medium  of  exchange. 

Observe  that  it  is  not  now  a  question  of  prices,  of  how  many 
dollars  in  greenbacks  were  required  in  1864  or  1874  to  buy 
what  ten  dollars  in  gold  would  have  purchased  in  1860,  or 
would  purchase  at  the  present  time.  That,  as  we  have  seen, 
is  a  matter  of  the  volume  and  rapidity  of  circulation.  The 
question  now,  is  simply  as  to  the  freedom  and  fullness  of  cir- 
culation. 


156  POLITICAL  ECONOMY. 

It  is  not  asserted  that  such  paper  is  always  and  everywhere 
money.  It  becomes  money  when  it  begins  to  do  the  money- 
work  ;  it  remains  money  as  long  as  it  continues  to  do  that 
work  ;  it  falls  out  of  the  category  of  money  when  it  ceases  to 
do  that  work.  After  the  American  Congress  had  issued  the 
"  Continental "  money  in  such  quantity  that  even  the  treasury 
ceased  to  keep  a  record  of  the  issues,  and  the  value  had  sunk 
to  200:1  of  silver,  there  is  no  question  that,  for  a  short  period 
before  the  notes  finally  disappeared  and  silver  came  back,  the 
notes  ceased  to  be  money.  Men  would  not  take  them  ;  modi- 
fied their  production,  or  curtailed  it  to  avoid  the  necessity  of 
taking  the  discredited  paper  ;  resorted  increasingly  to  barter, 
in  spite  of  all  its  inconveniences.  The  same  fate  befell  the 
French  "  mandats "  after  the  revolutionary  authorities  had 
issued  "  assignats  "  to  an  amount  popularly  stated  at  forty-five 
thousand  millions  of  francs.  The  Confederate  notes  ceased  to 
be  money  upon  the  collapse  of  the  government  that  issued  them. 

210.  May  Paper  Money  serve  as  the  Value  Denominator  ? 
— It  is  at  this  point  that  the  economists  appear  to  me  most 
deeply  in  error,  insisting,  as  they  do,  that  here  is  something 
which  metal  money  does,  but  paper  money  can  not  do. 

It  was  said,  in  the  last  chapter,  that  money,  in  performing 
the  function  now  in  question,  is  commonly  spoken  of  as  the 
"  Measure  of  Value."  Now,  what  money  does  in  this  con- 
nection is  no  more  than  to  serve  as  the  common  denominator 
of  values,  as  described  by  Prof.  Jevons,  in  par.  182.  It  was 
shown  in  the  pages  immediately  following,  that  this  function 
is  not  a  separate  and  independent  function  of  money,  but  a 
purely  incidental  and  subordinate  function  ;  that  not  only  is 
any  thing  which  is  competent  to  serve  as  the  general  medium 
of  exchange,  adequate  also  to  serve  as  the  common  denomin- 
tor  of  values  ;  but  that  any  thing  which  does,  in  fact,  serve 
as  the  medium  of  exchange,  must,  in  the  very  act  and  part  of 
doing  so,  create  the  price-current,  which  is  what  is  sought 
under  this  title.* 

*  The  idea  that  values  are  "  measured  "  by  money,  has  a  great  deal  of 
tenacity.  A  somewhat  more  extended  discussion  of  this  question  will 
be  found  in  my  work  on  Money,  Chap.  XIV. 


ARE   GREENBACKS  MONEY?  157 

If  corn,  beef,  wool,  potatoes,  coal,  and  all  other  articles  in 
the  market  are  daily  exchanged  for  that  one  article — money — 
no  matter  of  what  it  consists,  or  why  it  became  money,  we 
have,  as  the  direct  result  of  those  transactions,  the  means  of 
comparing  the  values  of  corn,  beef,  wool,  and  all  othe> 
articles  :  that  is,  we  have  our  price-current.  If  all  those 
articles  are  exchanged  against  pieces  of  paper,  we  obtain  their 
exchanging  proportions  just  as  really,  just  as  accurately, 
readily  and  intelligibly,  as  when  they  are  exchanged  against 
pieces  of  gold,  silver  or  copper.  If  one  article  brings  three 
pieces  of  paper,  another  ten,  another  eight,  we  learn  the  com- 
parative value  of  those  articles  as  quickly  and  easily  as  if  the 
first  brought  three  pieces  of  silver,  the  second  ten,  and  the 
third  eight. 

211.  May  Paper  Money  Serve  as  the  Standard  of 
Deferred  Payments  ? — We  have  seen  that  paper  money  may 
become  the  general  medium  of  exchange,  being  taken  as  freely 
and  eagerly  as  money  of  silver  or  gold.  We  have  also  seen 
that  whatever  serves  as  the  general  medium  of  exchange  does, 
by  that  very  fact,  serve,  also,  as  the  common  denominator  of 
values,  furnishing  the  price-current  from  which  are  determ- 
ined the  exchanging  proportions  of  all  commodities  in  the 
market. 

That  paper  money  may  serve  as  the  standard  of  deferred 
payments  goes  without  saying.  As  was  stated  under  a  pre- 
vious title,  forced  circulation  is  generally  an  attribute  of  this 
sort  of  money,  and  where  that  is  the  case,  such  money 
becomes,  by  definition,  the  standard  of  deferred  payments. 
By  it  the  obligation  of  the  debtor,  the  claim  of  the  creditor, 
is  measured,  as  of  course.  Even  where  paper  money  is  not 
made  legal  tender,  it  is  almost,  if  not  quite,  as  likely  to  become 
the  standard  of  deferred  payments  as  a  money  of  silver  or  gold. 
The  tendency  to  express  the  consideration  of  all  sales  in  terms 
of  that  which  is  the  current  money  of  daily  use,  is  so  strong 
that  few  persons,  even  of  those  who  are  acting  as  trustees,  will 
take  the  trouble  to  make  leases,  rents,  annuities  or  interest 
upon  loans  payable  in  any  thing  but  the  ordinary  circulating 
medium  of  the  time. 


158  POLITICAL  ECONOMY. 

The  notes  of  the  Bank  of  England  were  not  legal  tender,  in 
the  ordinary  sense,  during  the  period  of  the  "  Restriction  "  ; 
yet,  though  they  ceased  to  be  convertible  in  1797,  the  first 
instance,  so  far  as  I  am  aware,  of  a  refusal  to  accept  such 
notes  in  payment  of  debts,  was  that  of  Lord  King,  in  1811  ; 
and  this  refusal  took  place,  as  Lord  King  claimed,  not  from 
any  selfish  motive,  but  purely  in  order  that,  by  strongly 
attracting  public  attention  to  the  unfortunate  monetary  condi- 
tion of  the  kingdom,  he  might  promote  the  resumption  of 
specie  payments. 

During  the  circulation  of  the  legal  tender  greenbacks  in 
the  United  States,  every  person  who  wished  to  make  contracts 
for  future  payments  in  terms  of  gold  or  silver,  was  at  liberty 
to  do  so  ;  yet  it  is  notorious  that  few  took  advantage  of  their 
legal  right  in  this  respect.  That  which  had  become,  no 
matter  how,  the  current  money  of  daily  use  became,  for  that 
reason  alone,  the  almost  universal  standard  of  deferred  pay- 
ments. 

It  is  another  question  whether  paper  money  performs  this 
function  with  justice  to  debtor  and  creditor,  or  with  advan- 
tage to  the  general  community.  That  question  we  shall  meet 
further  on. 

212.  What  Determines  the  Value  of  Paper  Money? — 
What  determines  the  value  of  any  kind  of  money  ?  What 
determines  the  value  of  any  thing?  Demand  and  supply. 
The  demand  for  money  is,  as  we  saw  (par.  170),  the  amount 
of  money-work  to  be  done,  the  amount  of  exchanging  requir- 
ing to  be  effected  through  the  use  of  money.  The  supply  of 
money  is  the  money-force  available  to  do  the  money-work. 
It  is  compounded  of  the  -volume  of  the  circiilating  money  and 
the  rate  of  circulation.  Supposing  the  occasion  for  the  use  of 
money — the  demand — to  remain  the  same,  and  the  rate  of  the 
circulation  of  paper  to  be  the  same  as  that  of  metal,  the  value 
of  a  body  of  paper  money  would  be  the  same  as  that  of  a 
body  of  money  consisting  of  as  many  pieces  of  metal  as  there 
were  pieces  of  paper,  the  pieces  being  of  the  same  "  denomina- 
tions," whether  stamped  with  the  mint-press  or  the  printing- 
press. 


INCONVERTIBLE  PAPER  MONEY.  159 

We  said  :  "  Supposing  the  rate  of  circulation  of  paper  to  be 
the  same  as  that  of  metal."  I  am  aware  of  no  reason  for 
supposing  that  any  difference  in  the  rate  of  circulation  of 
metal  money,  on  the  one  hand,  and  of  paper  money  on  the 
other,  would  exist,  if  all  other  conditions  were  alike,  of  suffi- 
cient importance  to  be  taken  into  account.  The  paper  would, 
of  course,  be  handled  somewhat  more  easily,  would  be  remitted 
by  mail  or  parcel-delivery  somewhat  more  readily  and  safely, 
and  thus  a  thousand  dollars,  so-called,  in  paper  would  do 
somewhat  more  money- work  than  a  thousand  dollars  in  metal. 
The  difference  in  that  respect  would,  however,  not  be 
important. 

We  may  accordingly  drop  this  proviso.  We  also  said  : 
"  Supposing  the  occasion  for  the  use  of  money — the  demand 
— to  remain  the  same."  Will  the  demand  for  money  be 
affected  by  the  substitution  of  paper  for  metal  ?  The  popular 
opinion  undoubtedly  is  that  the  mere  fact  of  the  emission  of 
inconvertible  paper  produces  discredit,  so  that  such  money, 
irrespective  of  any  excess,  at  once  becomes  distrusted  and 
avoided. 

213.  Depreciation  not  a  necessary  consequence  of  Incon- 
vertibility.— The  opinion  above  stated  is  unfounded.  We 
saw  (par.  201)  that  depreciation  is  not  a  necessary  result  of 
debasement  of  the  coin.  Not  only  will  the  same  line  of 
reasoning  establish  the  proposition  that  depreciation  is  not  a 
necessary  result  of  the  issue  of  inconvertible  paper  ;  but  his- 
torical instances  not  a  few  exist  of  such  paper  money  main- 
taining itself  for  a  time  in  circulation  without  discredit  and 
without  depreciation.  It  is  undoubtedly  true,  as  Prof.  Bona- 
my  Price  asserts,  that  "  experience  has  proved  that  it  need 
not  of  necessity  suffer  any  depreciation  of  value."* 

*  On  a  point  so  vital  it  may  be  well  to  add  authority  to  reason,  espe. 
cially  as  current  American  literature  misrepresents  the  real  purport  of 
economic  opinion  on  this  subject. 

Mr.  Thomas  Tooke,  the  most  eminent  economic  statistician  of  the 
world,  explicitly  and  repeatedly  states  that  depreciation  is  not  a  neces- 
sary consequence  of  inconvertibility. 

Mr.  James  Wilson,  founder  of  the  London  Economist,  and  a  states- 


160  POLITICAL   ECONOMY. 

214.  Inconvertible  Paper  always  issued  as  Cheap  Money. 

The  moving  cause  in  the  issue  of  inconvertible  paper  money 

has  been  its  cheapness,  as  compared  with  the  metal  money 
which  it  has  replaced.  Whatever  excellencies  may  have  been 
reflectivelv  discovered  in  such  money  after  it  had  come  into 
circulation,  I  am  not  aware  that  the  institution  of  such  money 
has  been  due,  in  an  individual  instance,  to  any  other  virtual 
reason  than  that  which  has  been  expressed. 

We  saw  that  the  sovereign  first  pinched  the  coin,  say,  one 
per  cent.,  under  the  name  of  seigniorage,  to  meet  the  cost  of 
coinage,  and  then,  finding  the  opportunity  too  tempting,  took 
out  it  might  be  five,  it  might  be  fifteen  per  cent.,  or  even 
more,  for  his  own  benefit.  The  issue  of  paper  money,  is  in 
effect,  the  exaction  of  a  seigniorage  of  one  hundred  per.  cent. 
At  times,  that  exaction  has  been  made  in  cold  blood,  at  the 
dictate  of  avarice  ;  at  times,  and  indeed,  more  often,  the 
exaction  has  appeared  to  be  justified,  if  not  sanctified*  by 
some  great  exigency  of  national  life. 

man  and  financier  of  wide  experience,  declares  that  if  the  amount  of 
inconvertible  paper  be  properly  regulated,  "  there  is  no  reason  whatever 
why  such  notes  should  suffer  depreciation." 

M.  Courcelle-Seneuil,  a  French  writer  on  Finance,  whose  views  are 
entitled  to  much  consideration,  expresses  the  opinion  that  if  the  emis- 
sions of  paper  money  be  moderate,  they  may  have  the  same  value  as 
metallic  money. 

I  have  made  use  of  three  names  of  the  first  rank  in  the  economics  of 
finance.  Let  me  now  quote,  at  greater  length,  the  most  illustrious  writer 
known  to  monetary  science. 

"  The  whole  charge  for  paper  money,"  says  Mr.  Ricardo,  "  may  b& 
considered  as  seigniorage.  Though  it  has  no  intrinsic  value,  yet  by  lim- 
iting its  quantity,  its  value  in  exchange  is  as  great  as  an  equal  denom- 
ination of  coin,  or  of  bullion  in  that  coin.  It  is  not  necessary  that  paper 
money  should  be  payable  in  specie  to  secure  its  value  ;  it  is  only  neces- 
sary that  its  quantity  should  be  regulated  according  to  the  value  of  the 
metal  which  is  declared  to  be  the  standard." 

*  Hence  the  phrase  the  "  the  blood-stained  Greenback."  Lest  I  should 
be  misunderstood,  let  me  say  that  it  is  my  firm  belief  that  the  issue  of 
inconvertible  paper  money  is  never  a  sound  measure  of  finance,  no  mat- 
ter what  the  stress  of  the  national  exigency  may  be.  I  believe  it  to  be  as 
surely  a  mistaken  policy  as  the  resort  of  an  athlete  to  the  brandy  bottle. 
It  means  mischief  always.  If  there  is  ever  a  time  when  a  nation  needs. 


JS  BAD  MONEY,    CHEAP  MONEY?  161 

215.  Without  any  such  stress  of  fiscal  necessities  as  those 
caused  by  war,  paper  money  has  been  frequently  issued  by 
governments  as  a  fiscal  resource,  to  enable  public  works  to  be 
created,  to  meet  an  unexpected  deficiency  of  revenue,  or  even, 
as  in  the  case  of  some  of  the  early  American  colonies,  to  set 
bounties  on  manufactures  or  the  fisheries.     There  is  always  a 
great  temptation,  to  statesmen  and  to  people  alike,  in  times  of 
emergency,  in  the  knowledge  that  it  is  possible  to  replace  a 
money  of  high  cost  by  a  money  of  low  cost,  of  cost,  indeed, 
so  small  that  it  may  be  called  no  cost. 

216.  Is  it  really  Cheap  Money? — That  depends  on  whether 
it  be  good  money  or  not.     The  money  function  is  so  import- 
ant, so  vital,  in  the  industrial  system,  that  there  can  be  no 
true  economy  in  any  money  but  the  very  best.     If  the  first 
cost  of  money  can  be  saved,  in  whole  or  in  part,  without  loss 
of  efficiency  or  safety,  that  course  is  unmistakably  dictated  by 
the  same  law  of  the  human  mind  which  impels  the  individual 
to  go  to  his  object  by  the  shortest  path,  or  to  buy  in  the  cheap- 
est market.     To  use  a  money  which  has  to  be  dug  out  of  the 
depths  of  the  earth,  drilled  and  blasted  out  of  rock,  perhaps  at 
the    depth   of  two  thousand  feet  where  water  almost  boils 
from  internal  fires,  when  a  money  in  every  way  as  good  could 
be  made  from  paper-pulp   and  printed  with  a  steam  press, 
would  be  the  extreme  of  wastefulness.     On  the  other  hand, 
to  use  any  but  the  best  money,  that  which  will  perform  the 
money  function  in  the  most  perfect  manner,  would  be  economy 


its  full  collected  vigor,  with  a  steady  pulse,  a  calm  outlook,  a  firm  hand, 
a  brain  undisturbed  by  the  fumes  of  this  alcohol  of  commerce — paper 
money — it  is  when  called  to  do  battle  for  its  life  with  superior  force.  It 
is  to  my  mind  the  highest  proof  of  the  supreme  intellectual  greatness  of 
Napoleon,  that,  during  twenty  years  of  continuous  war,  he  never  was 
driven  to  this  desperate  and  delusive  resort.  I  hold  any  man  to  be  some- 
thing less  than  a  statesman,  in  the  full  sense  of  that  word,  who,  under 
any  stress  of  fiscal  exigency,  supports  or  submits  to  a  measure  for  the 
issue  of  paper  money  not  convertible,  at  the  instant,  on  demand,  without 
conditions,  into  coined  money.  The  political  arguments  by  which  such 
measures  are  always  supported,  on  the  outbreak  of  war,  seem  to  me  the 
veriest  trash,  due  half  to  ignorance,  and  half  to  cowardice. 


162  POLITICAL  ECONOMY. 

of  the  same  sort  and  degree  as  putting  rotten  timbers  into  a 
bridge  because  they  were  cheaper  than  sound  timbers. 

217.  Is  it,  then,  Good  Money  ?— I  know  of  nothing  in  the 
history  of  inconvertible  paper  money  to  indicate   that   such 
money,  when  issued  of  a  denominative  value  not  to  exceed 
the  mint-value  of  the  coin  which  would  have  circulated  in  the 
community  under  the  law  for  the  territorial  distribution  of 
money  which  has  been  stated  (pars.  176-80),  may  not  serve  as 
the  general  medium  of  exchange,  so  far  as  the  internal*  trade 
of  a  country  is  concerned,  in  every  way  as  satisfactorily  as  the 
coin  itself.    Indeed,  if  any  preference  exists,  it  will  be  in  favor 
of  the  paper  money,  as   more  convenient  to   handle,  more 
readily  transported,  more  successfully  concealed. 

Moreover,  it  has,  I  think,  been  sufficiently  shown  that  what- 
ever acts  as  the  general  medium  of  exchange,  in  the  very  act 
of  doing  this  performs  the  function  of  a  common  denominator 
of  values,  furnishing  a  price-current  in  which  the  values  of  all 
commodities  are  expressed  in  terms  of  that  one  article. 

But  as  regards  the  function  of  a  standard  for  deferred  pay- 
ments, a  wide  difference  may  exist  between  two  articles  which 
might,  with  equal  convenience,  be  used  as  the  medium  of 
exchange.  It  might  happen  that  an  article  having  a  decided 
preference  in  the  latter  function  would  be  found  far  inferior 
in  the  former  function  ;  might  even  be  miserably  deficient  in 
the  requisites  of  a  standard  of  deferred  payments.  Let  us, 
then,  inquire  further  respecting  inconvertible  paper  money,  on 
this  score. 

218.  Inconvertible  Paper   Money  as   the    Standard   of 
Deferred  Payments. — In  the  fact  that  this   money  has   no 
natural  cost  of  production,  lies  the  possibility,  not  merely  of 
gross  injustice  as  between  individuals  and  classes  of  the  com- 
munity  (which  is  not  an  economic  consideration),  but  also  of 
grave  industrial  evils,  and  even  disasters  of  the  most  appalling 
character.     Mr.  Ricardo  has  rightly  said  that,  by  limiting  the 
supply,  any  degree  of  value  can  be  given  to  the  money  of  a 
country,  be  it  of  gold  and  silver  or  of  paper  ;  but  in  the  case 

*  The  relations  of  inconvertible  paper  money  to  foreign  trade  and 
international  exchanges  will  be  spoken  of  in  paragraph  220. 


EXCESS  OF  PAPER  ISSUES.  163 

of  the  last  no  limitation  of  the  supply  is  set  by  natural  forces. 
Paper  money  has  no  cost  of  production.  The  expense  of 
printing  a  dollar  bill  is  so  small,  that,  for  purposes  of  eco- 
nomic reasoning,  it  may  be  disregarded  altogether,  while  the 
expense  of  printing  a  ten-dollar  bill  or  a  hundred-dollar  bill 
or  a  thousand  dollar  bill  is  no  greater.  The  limitation  of  sup- 
ply in  the  case  of  such  money,  therefore,  must  be  left  to  law, 
convention,  or  accident. 

We  have  seen  that  it  would  require  many  years  of  highly 
stimulated  production  to  affect  appreciably  the  world's  stock 
of  the  precious  metals,  and,  by  consequence,  the  value  of  those 
metals.  The  cereal  grains,  indeed,  being  consumed  in  one  or 
two  years  after  their  production,  may  be  increased  in  quantity 
more  rapidly,  say,  twenty  or  thirty  per  cent,  in  a  year,  as  the 
result  of  exceptionally  abundant  harvests ;  yet  even  here 
human  volition  only  controls  the  elements  of  production  to  a 
limited  extent ;  and  increase  on  such  a  scale  could  not  be  car- 
ried forward  more  than  two  or  three  years  at  the  furthest.  In 
the  case  of  paper  money,  however,  the  stock  may  be  increased, 
at  the  will  of  the  issuer,  to  any  extent,  within  the  briefest 
period.  The  quantity  may  be  trebled,  decupled,  centupled, 
by  the  operations  of  the  printing-press. 

219.  Domestic  Effects  of  Inflation. — The  value  of  money 
depending,  as  has  been  shown,  upon  the  relation  of  supply  to 
demand,  an  increase  of  issues  implies  a  loss  of  value  in  each 
given  quantity  of  money.  This  involves  a  corresponding  loss 
to  all  creditors,  and  a  corresponding  gain  to  all  debtors. 
That -result,  being  brought  about  by  legislation  or  by  the  act 
of  the  prince,  is  properly  termed  confiscation.  So  far  as  it 
concerns  only  the  existing  body  of  debts,  the  question  of  con- 
fiscation is  of  interest  only  from  the  point  of  view  of  political 
equity.  But  such  a  measure  also  becomes  a  highly  destructive 
force  within  the  field  of  present  and  future  industry,  dealing  a 
grievous  blow  at  the  instincts  of  frugality  in  the  individual, 
and  at  the  organization  of  the  industrial  body  for  the  purposes 
of  production  and  exchange. 

Such  a  blow  once  dealt  might  in  time  be  recovered  from  ; 
but  if  new  fiscal  exigencies  of  the  government,  or  the  political 


164  POLITICAL  ECONOMY. 

pressure  of  the  debtor  class  draw  out  other  issues  of  incon- 
vertible paper,  not  only  will  the  value  of  the  money  continue 
to  sink,  through  excess  of  supply,  but  another  cause  will  begin 
to  work  in  the  same  direction.  The  money  demand  will  re- 
ceive a  shock  such  as  has  been  described  in  par.  200,  which 
may  operate  slowly  and  continuously,  or  may  produce  a  sud- 
den collapse  of  the  circulation,  the  treasury  crowding  out  the 
paper  upon  a  reluctant  and  indignant  people,  who  will  none  of 
it ;  who,  through  experience  of  grave  losses  in  the  past,  shun 
it  as  they  would  the  plague,  contracting  their  industry,  or 
changing  its  form  at  whatever  sacrifice,  or  resorting  to  barter 
in  spite  of  all  its  inconveniences,  to  avoid  the  use  of  the  de- 
tested money.  This  was  the  fate,  at  the  last,  of  the  American 
"  Continental  Currency,"  and  of  the  "Assignats  "  and  "  Man- 
dats  "  of  the  French  revolution. 

Such  are  the  possibilities  attending  the  issue  of  paper 
money  by  the  government.  It  may  be  asked  what  are  the 
probabilities  of  the  case  ?  As  we  have  here  reached  the 
limit  of  strictly  economic  inquiry,  I  prefer  to  postpone  our 
answer  to  this  question  to  Part  VI.,  where,  under  the  title 
"  Political  Money,"  the  subject  will  be  briefly  treated  in  its 
political  and  historical  aspects. 

220.  Inconvertible  Paper  Money  and  Foreign  Exchanges. 
— But  before  we  leave  the  topic  of  inconvertible  paper  money, 
we  have  to  view  another  phase,  viz.,  its  relation  to  Inter- 
national Exchanges.  Thus  far,  we  have  spoken  of  the  issue 
of  paper  money  by  government,  only  in  its  effects  upon 
domestic  trade  and  production.  We  are  now  to  consider  its 
influence  upon  the  commercial  relations  of  the  issuing  country 
with  foreign  countries. 

By  the  mere  fact  of  the  adoption  of  this  kind  of  money,  a 
country  loses  all  the  advantages  of  an  automatic  regulation  of 
the  money  supply  through  the  normal  movements  of  trade. 
Paper  money  finds  no  outlet  in  international  commerce.  It 
can  not  be  exported  and  retain  its  value.  Hence  its  regula- 
tion becomes  purely  mechanical.  Having  no  natural  cost  of 
production,  it  will  not,  if  in  excess  in  any  country,  flow  away 
in  obedience  to  the  law  which  governs  the  distribution  of  a 


PAPER   MONEY  AND  FOREIGN  EXCHANGES.         165 

money  having  acceptance  abroad  equally  as  at  home.  If 
issued  in  excess,  it  can  only  be  removed  by  .being  pumped 
out  by  the  same  force  which  originally  issued  it. 

Even  where  the  excess  of  such  paper  money,  over  what 
would  have  been  that  country's  distributive  share  of  the 
world's  money,  be  not  enough  to  produce  grave  disturbances  of 
domestic  industry,  the  effect  on  foreign  trade  will  yet  be 
momentous.  The  immediate  result  of  any  excess  must  be  to 
establish  a  premium  upon  that  metallic  money  in  which  alone 
foreign  balances  can  be  paid. 

To  one  who  is  not  familiar  with  the  largest  operations  of 
commerce  this  may  seem  a  small  matter  ;  yet,  if  we  may 
trust  those  who  are  best  qualified  to  decide  such  questions, 
the  money  of  a  commercial  state  can  not  depart,  by  the  nar- 
rowest interval,  from  the  money  in  which  international  bal- 
ances are  discharged,  without  creating  obstructions,  exciting 
apprehensions  and  even  occasioning  losses,  to  which  modern 
trade,  with  its  highly  developed  and  acutely  sensitive  organ- 
ization, will  not  submit,  or  will  do  so  only  upon  the  payment, 
of  heavy  fines  by  the  offending  community. 

During  the  German  war,  and  for  some  years  after,  viz., 
from  1871-1877,  the  notes  of  the  bank  of  France  were  incon- 
vertible ;  yet  such  was  the  sagacity  and  prudence  of  the 
directors  of  that  institution  that  at  no  time  was  there  any 
considerable  discount  on  that  money,  the  premium  on  gold 
being  often  but  a  small  fraction  of  one  per  cent.  Yet,  slight  as 
was  the  disturbance  of  the  domestic  circulation,  Mr.  Bagehot, 
in  his  standard  work,  Lombard  Street,  written  during  the  period 
of  suspension,  attributes  to  it  the  most  momentous  consequences. 

"  The  note  of  the  bank  of  France,"  he  says,  **  has  not,  indeed, 
been  depreciated  enough  to  disorder  ordinary  transactions.. 
But  any  depreciation,  however  small,  even  the  liability  to 
depreciation,  icithout  its  reality,  is  enough  to  disorder  exchange 
transactions.  They  are  calculated  to  such  an  extremity  of 
fineness,  that  the  change  of  a  decimal  may  be  fatal,  may  turn 
a  profit  into  loss.  Accordingly  London  has  become  the  sole 
great  settling-house  of  exchange  transactions  in  Europer 
instead  of  being,  as  formerly,  one  of  two." 


1 66  POLITICAL  ECONOMY. 

CHAPTER  VI. 

BANK  MONEY. 

221.  The  Characteristics  of  Bank  Money.— To  secure  thfe 
superior  convenience  of  paper  money,  and,  in  a  degree,  also,  its 
cheapness,  as  contrasted  with  money  of  metal,  while  retaining 
the  comparative  stability  of  value  which  characterizes  the  latter, 
and  to  keep  the  local  circulation  in  such  close  communication 
with  the  general  circulation  of  commerce  as  to  insure  the 
automatic  regulation  of  the  money  supply,  bank  money  has 
been  invented. 

The  essential  characteristic  of  such  money  is  that  the  paper 
is  instantly  convertible,  on  the  demand  of  the  holder,  into 
coined  money.  Whenever,  by  the  unrebuked  and  unpunished 
lapse  of  the  banks  issuing  paper  money,  as  so  frequently  in  the 
early  history  of  the  United  States,  or  by  the  action  of  govern- 
ment upon  its  own  initiative  and  for  its  own  purposes,  the 
money  so  issued  fails  to  be  convertible  to  the  full  extent  indi- 
cated, it  becomes  inconvertible  paper  money.  Nothing  entitles 
paper  to  be  called  bank  money  except  full,  instant,  uncondi- 
tional redemption  in  coin.  There  is  no  stopping-place  between 
this  condition  and  inconvertibility. 

Generally  speaking,  this  sort  of  money  is  issued  by  institu- 
tions which,  whether  under  State  patronage  or  not,  are  so  far 
disconnected  from  the  government  that  their  officers  and 
agents  can  be  sued  in  courts,  and  their  assets  and  effects  be 
attached  for  the  recovery  of  the  amount  promised  by  the 
"bank  notes  to  be  paid  on  demand.  In  this  matter  of  connec- 
tion with  the  State,  however,  there  is  found  among  banks, 
in  one  country  or  another,  every  degree  from  least  to  largest. 
In  some  instances  the  true  character  of  bank  money  has 
l>een  preserved  in  the  case  of  institutions  having  what 
would  appear  a  dangerously  close  connection  with  govern- 
ment. 

222.  The  Origin  of  Bank  Money. — Bank  money  in  its 
modern  form  was  first  issued  in  Sweden,  in  1658.     The  Bank 
of  Scotland  issued  £1  notes  as  early  as  1704,  while  the  Bank 


BANK  MONEY.  167 

of  England  did  not  issue  notes  below  £20  prior  to  1759.  The 
issue  of  bank  money,  proper,  did  not  begin  in  America  until 
after  the  revolution,  although  nearly  every  colony  had  been, 
at  one  period  or  another,  deluged  with  inconvertible  paper 
money.  The  great  bank  money  countries  of  to-day  are  the 
United  States  and  the  States  of  Northwestern  Europe. 

223.  The  Coin  Basis  of  Bank  Money. — We  have  said 
that,  in  addition  to  the  superior  convenience  of  bank  money 
over  coin,  the  motive  for  issue  is  found  in  its  comparative 
cheapness.  Banking  experience  has  shown  that  a  much  larger 
denominative  amount  of  notes  can  be  kept  in  circulation  than 
is  held  of  specie  for  redemption. 

On  all  this  excess,  the  issuer  of  the  notes  derives  a  profit 
which  is  measured  by  the  rate  of  interest  on  his  loans,  after 
deduction  is  made  of  the  expense  of  maintaining  the  service. 
The  metal  thus  displaced  from  circulation-  is  exported,  or 
melted  down  for  use  in  the  arts. 

The  advantage  to  the  community  of  this  saving  in  the  cost 
of  the  money  used  in  effecting  exchanges,  is  thus  conceived 
by  Adam  Smith. 

"  The  gold  and  silver  money  which  circulates  in  any  coun- 
try may  veiy  properly  be  compared  to  a  highway,  which, 
while  it  circulates  and  carries  to  market  all  the  grain  and  corn 
of  the  country,  produces  itself  not  a  single  pile  of  either. 
The  judicious  operations  of  banking,  by  providing,  if  I  may 
be  allowed  so  violent  a  metaphor,  a  sort  of  wagon-way 
through  the  air,  enables  the  country  to  convert,  as  it  were,  a 
great  part  of  its  highways  into  good  pastures  and  corn-fields, 
and  thereby  to  increase  very  considerably  the  annual  produce 
of  its  land  and  labor." 

The  amount  of  saving  effected  by  bank  money  varies,  in  the 
first  instance,  according  to  the  proportion  of  coin,  or  "  specie," 
as  it  is  commonly  called,  reserved  to  meet  demands  for  the 
redemption  of  the  notes  :  to  serve,  that  is,  as  the  basis  of  the 
circulation. 

That  proportion  is  different  in  different  countries,  and  often 
in  different  banks  in  the  same  country.  The  most  common 
legal  minimum  reserve  is  one-third.  In  Leipsic,  before  the 


1 68  POLITICAL   ECONOMY. 

unification  of  Germany,  the  specie  reserve  was  two-thirds, 
while  in  Bavaria  it  was  but  one-fourth. 

Before  tbe  war  of  secession,  the  banks  of  the  U  nited  States 
held  an  absurdly  small  amount  of  specie,  the  proportion  in 
some  States  falling  to  ten,  five,  or  even  three  per  cent.  But 
the  so-called  bank  money  of  many  of  the  States  of  the  Ameri- 
can Union,  during  certain  periods  in  the  early  history  of  the 
nation,  was  really  nothing  but  inconvertible  money,  hardly 
the  pretense  of  redemption  being  maintained.* 

224.  The  Banking  Principle. — The  view  of  the  operations 
of  bank  money  which  is  held  by  the  great  majority  of  writers 
of  repute,  in  nearly  all  countries,  is  that,  when  really  converti- 
ble into  coin  on  demand ;  with  all  reasonable  facilities  exist- 
ing for  redemption,  and  with  redemption  actually  taking 
place  from  time  to  time  ;  with  a  public  opinion  which  does 
not  allow  to  be  questioned  the  right  of  any  man  anywhere, 
for  any  reason  or  for  no  reason,  to  require  coin,  for  any  and 
all  notes  he  may  hold  ;  and  with  exemplary  penalties,!  pro- 

*  Mr.  Condy  Raguet  thus  describes  the  action  of  American  banks  dur- 
ing this  period,  when  in  a  state  of  suspension  : 

"  Banks,  when  they  default  in  their  payments,  not  only  never  ask  the 
indulgence  of  their  creditors,  for  any  specified  extension  of  time,  but  they 
do  not  even  think  themselves  under  obligation  to  pay  interest  to  the  cred- 
itors for  the  funds  they  forcibly  detain  from  them  ;  nay,  they  irequently, 
in  the  midst  of  their  insolvency,  declare  dividends  of  the  very  profits 
which  actually  belong  to  their  creditors." 

Of  an  earlier  period  Mr.  Gallatin  has  written  :  "  It  was  the  catastrophe 
of  the  year  1814  which  first  disclosed  not  only  the  insecurity  of  the  Ameri- 
can banking  system,  as  then  existing,  but  also  that,  when  a  paper  currency, 
driving  away  and  superseding  the  use  of  gold  and  silver,  has  insinuated 
itself  through  every  channel  of  circulation,  and  become  the  only  medium 
of  exchange,  every  individual  finds  himself,  in  fact,  compelled  to  receive 
such  currency,  even  when  depreciated  more  than  twenty  y^r  cent.,  in  the 
*ame  manner  as  if  it  had  been  a  legal  tender." 

f'By  convertibility  of  the  paper,"  says  Mr.  Tooke,  "according  to 
the  ordinary  signification  cf  the  term  when  applied  to  bank  notes  in  this 
country  (England),  is  meant  that  a  holder  of  a  promissory  note — payable 
on  demand — may  require  payment  in  coin  of  a  certain  weight  and  fine- 
ness, and  in  the  event  of  refusal  or  demur,  such  payment  is  enforced  by 
Jaw  against  the  issuer,  to  the  utmost  extent  of  his  property.  The  issuer. 


BANK  MONEY.  169 

vided  by  law  and  enforced  by  the  courts,  for  the  first  failure 
or  the  slightest  delay  on  the  part  of  banks  to  make  good  their 
promises,  such  money  acts  in  all  respects  precisely  as  would  a 
body  of  money  composed  wholly  of  coin.  It  is  held  to  be 
fully  subject  to  the  law  (par.  176)  which  governs  the  terri- 
torial distribution  of  money  consisting  of  the  precious  metals 
only  ;  and  to  have  every  economic  virtue  which  belongs  to 
such  money,  with  the  added  advantage  of  greater  cheapness 
and  greater  convenience  in  use. 

"  We  are  willing,"  says  Mr.  Tooke,  the  leader  of  the  school 
of  economists  known  as  the  advocates  of  the  "  Banking  Prin- 
ciple," whose  theory  I  have  stated,  "  we  are  willing  to  con- 
sider a  metallic  currency  as  the  type  of  that  to  which  a  mixed 
circulation  of  coin  and  paper  ought  to  conform.  But,  further, 
we  contend  that  it  has  so  conformed,  and  must  so  conform, 
while  the  paper  is  strictly  convertible." 

The  same  opinion  is  expressed,  with  great  emphasis,  by  Mr. 
Fullarton  and  Mr.  James  Wilson,  and  by  M.  Courcelle-Seneuil. 

225.  The  Currency  Principle. — The  view  of  bank  money 
which  has  been  stated  in  the  foregoing  paragraph,  is  that 
which  is  held  by  a  majority  of  writers  of  reputation.  The 
opposite  opinion  was  maintained  by  a  school  of  economists  in 
England,  comprising  the  advocates  of  the  so-called  "  Cur- 
rency Principle,"  the  leader  of  the  school  being  Lord  Over- 
stone. 

In  the  view  of  this  school,  something  more  than  sound 
banking  is  needed  to  give  a  country  good  bank-money.  If 
numerous,  competing  banks  are  left  free  to  issue  notes  in 
such  quantity  and  of  such  denominations  as  their  own  inter- 
ests may  dictate,  with  such  specie  reserves  as  their  own  pru- 
dence alone  may  suggest,  there  will  always  be  the  probability 
and  often  an  extreme  danger  of  over-issue,  a  body  of  bank- 
money  so  composed  not  being  wholly  amenable  to  the  law  of 

whether  a  private  or  joint-stock  banker,  is  considered  to  have  failed.  The 
-circulation  of  his  notes  is  at  an  end,  and  he  is  subject  to  the  process 
usual  in  cases  of  insolvency." — ["  History  of  Prices."]  Compare  this  with 
the  state  of  things  disclosed  by  Mr.  Raguet,  in  the  foot-note  last  pre- 
ceding. 


170  POLITICAL  ECONOMY. 

distribution  which  governs  metal  money,  but  possessing  the 
capability  of  temporary  and  local  inflation. 

This  opinion  was  ably  maintained  by  Lord  Overstone,  Mr. 
Norman  and  Colonel  Torrens,  against  the  views  of  the  Bank 
of  England,  and  after  a  long  struggle,  the  economists  of  this 
school  triumphed  in  the  enactment  of  the  Bank  Act  of  1844* 
which  still  governs  the  note-circulation  of  England,  though 
the  principle  on  which  it  was  framed  is  now  challenged  by 
many  of  the  best  financiers  and  economists. 

In  the  United  States,  owing  doubtless  to  gross  abuses  of 
the  right  of  bank-note  issue,  such  as  have  been  adverted  to  in 
a  note  on  a  preceding  page,  the  views  of  the  English  cur- 
rency school  obtained  an  acceptance  among  professional 
economists  and  writers  on  finance  even  wider  and  more  com- 
plete than  in  England,  although 'in  but  few  states  did  this  lead 
to  legislation  in  any  degree  comparable,  in  scope  or  stringency 
of  operation,  to  the  English  act  of  1844.  The  leading  writers 
on  this  question  in  the  United  States,  were  Messrs.  William 
M.  Gouge,  Condy  Raguet  and  Amasa  Walker. 

226.  The  Currency  Principle  vs.  the  Banking  Principle. 
— The  question  whether  a  body  of  money  composed  partly  of 
coin  and  partly  of  bank  notes  fully  convertible  into  coin,  acts 
in  all  respects  as  would  a  body  of  money  composed  wholly  of 
coin,  or,  on  the  other  hand,  has  the  capability  of  being  issued 
in  local  excess  and  so  maintained  for  a  long  enough  time  to 
affect  local  prices,  and  thus  initiate  abnormal  movements  of 

*  The  principal  features  of  the  act  of  1844,  as  affecting  the  circulation, 
are  as  follows  :  1st.  The  Bank  of  England  is  allowed  to  issue  notes,  in  a 
constant  sum  of  £15,000,000,  without  any  specie  basis.  For  all  notes 
above  this,  it  must  have,  pound  for  pound,  a  specie  reserve,  of  which 
one-fifth  may  be  silver.  [This  last  in  consideration  of  the  commer- 
cial and  political  relations  of  England  with  India,  which  has  silver 
money.] 

2nd.  The  issue  department  and  the  banking  department  of  the  Bank 
are  completely  divorced,  becoming  as  separate  as  the  Customs  and  the 
Internal  Revenue  bureaus  of  our  own  government. 

3rd.  No  London  bank  can  issue  notes,  nor  can  any  bank  chartered 
since  1844 ;  while  the  issues  of  the  English  banks  then  existing 
are  limited  to  their  ordinary  outstanding  circulation  prior  to  that  date. 


REACTION  OF  EXCHANGE    ON  PRODUCTION.         171 

trade  and  production,  I  regard  as  the  one  open  question  in  the 
theory  of  money.  Brought  up  in  the  school  which  held  the 
latter  view,  my  own  reading  and  reflection  have  confirmed 
me  in  the  belief  that  there  resides  in  bank  money,  even  under 
the  most  stringent  provisions  for  convertibility,  the  capability 
of  local  and  temporary  inflation.  The  arguments  on  the  two 
sides  of  the  question  are  so  evenly  balanced,  and  the  statis- 
tical evidence  is  so  ambiguous,  that  differences  of  opinion  are 
likely  long  to  exist  between  men  of  intelligence  and  candor. 
I  freely  confess  that  the  preponderance  of  authoritative 
opinion  is  against  the  view  I  hold. 


CHAPTER  VII. 

THE  REACTION  OF  EXCHANGE  UPON  PRODUCTION. 

227.  Evil  Possibilities  involved  in  the  Division  of  Labor. 
— We  have  seen  that  the  division  of  labor  is  an  essential  con- 
dition of  large  and  varied  production.  But  the  division  of 
labor,  when  carried  far,  involves  possibilities  of  loss  and  dis- 
aster. These  become  more  and  more  serious  as  production 
becomes  more  and  more  extended  and  complicated,  until,  in 
the  most  highly  organized  industrial  state,  we  have  to  explain 
the  failure  of  a  community  to  realize  its  full  productive  capa- 
bility, mainly  by  reference  to  industrial  misadventures  and 
even,  at  times,  a  partial  paralysis  of  the  productive  powers  of 
the  community,  originating  in  this  very  source. 

The  cause  of  the  trouble  adverted  to  is  found  in  misunder- 
standings between  producers  and  consumers,  whom  it  is  the 
nature  of  the  division  of  labor  to  set  apart,  and,  in  an 
advanced  industrial  state,  widely  apart,  often  by  half  the  cir- 
cumference of  the  globe. 

It  is  evident  that,  were  there  no  division  of  labor  into 
separate  occupations,  the  relation  between  production  and 
consumption  would  be  a  simple  one.  Production  would, 
within  the  capabilities  of  the  several  agents  concerned,  viz., 


172 


POLITICAL  ECONOMY. 


land,  labor,  and  capital,  only  be  limited  by  the  effective  desire 
of  the  several  individuals  of  the  community  to  consume 
wealth.  Each  man  would  work  by  himself,  for  himself,  pro- 
ducing those  things,  and  those  only,  which  he  wished  per- 
sonally to  eat,  drink  or  wear,  or  house  or  warm  himself 
withal.  There  would  here  be  no  question  of  a  market,  for 
every  man  would  be  his  own  customer. 

From  this  point,  we  may  mark  off  three  stages  of  industrial 
development. 

228.  The  First  Stage. — The  first  is   where   distinction  of 
trades  is  introduced,  and  men  no  longer  consume  all,  or  per- 
haps any  part,  of  the  articles  they  have  produced  ;  yet  where 
consumers  live  near  the  producer,  and  are  personally  known 
to  him.     In  this  condition,  production,  except  in  agriculture, 
generally  waits  for  an  order  from  the  consumer.     If  goods 
are  produced  in  advance  of  an  order,  the  kinds  are  few,  the 
forms  are  simple,  the  styles  standard.  There  is,  moreover,  the 
reasonable  expectation  that  some  certain  person,  or  some  one 
out  of  a  certain  group  of  persons,  will  surely  and  soon  need 
the  goods,  and  will  become  the  consumer.     Here,  we  see,  is 
not  much  liability  to  a  misunderstanding  between  producer 
and  consumer. 

229.  The  Second  Stage.— The  second  stage  is  where  the 
element  of  personal  acquaintance  between  producer  and  con- 
sumer disappears.     Production  no  longer  waits  for   orders, 
but  anticipates  demand.     Goods  are  produced  for  a  general 
market,  and  upon  a  calculation  of  the  quantity  probably  to 
be  required.     The  individual  producer  has  no  longer  his  own 
circle  of  customers  ;  but  competes  with  other  producers  for 
the  largest  possible  share  of  the  patronage  of  a  wide  circle  of 
consumers.     Yet  it  is  still  true  that  production  is  carried  on 
by  artisans  working  singly  or  in  small  groups.     Tools  and 
implements  are  simple  and  inexpensive  ;    there   is   little   of 
"  plant  "  or  fixed  capital.     Fashions  are  few  and  styles  remain 
standard  through  long  periods  of  time.    Here,  manifestly,  the 
opportunity  for  misunderstandings  between  producer  and  con- 
sumer exists  in  a  higher  degree  than  under  the  former  condi- 
tions described.     Yet  even  here  pi'oduction  may  still  go  on 


REACTION  OF  EXCHANGE  ON  PRODUCTION.         173 

with  tolerable  uniformity:  all  hands  working  steadily  through 
all  the  seasons  of  the  year,  with  a  reasonable  assurance  that 
all  goods  which  are  well  made,  will  find  a  market  at  fairly 
remunerative  prices. 

230.  The  Third  Stage — The  third  stage  is  reached,  when 
increasing  facilities  of  communication  make  the  world  one 
trading  community.  Then  production  becomes  highly  diversi- 
fied, and  the  specialization  and  localization  of  trades  proceed 
so  far  that  one  country,  or  perhaps  one  group  of  towns,  pro- 
duces the  greater  part  of  all  the  goods  of  a  certain  sort  which 
are  consumed  throughout  the  world.    Then  luxury  and  refine- 
ment of  living  are  carried  to  the  maximum,  so  that  not  only 
are  classes  of  goods  multiplied  almost  indefinitely,  but  fashions 
and  modes  enter  till  standard  styles  almost  disappear,  each 
season  bringing  minute  modifications  of  demand  which  are 
not  to  be  satisfied  except  by  an  exact  compliance,  even  the 
colors  and  shades  of  one  year  becoming  intolerable  the  next. 

It  will  appear  that  conditions  like  the  foregoing  increase 
enormously  the  liability  of  misunderstanding  between  pro- 
ducers and  consumers.  The  possibilities  of  error  in  supplying 
the  markets,  no  longer  of  a  village,  but  of  the  world,  become 
tremendous. 

231.  The  Appearance  of  the  Entrepreneur. — But  it  must 
further  be  added,  that  powerful  and  complicated  machinery  is 
now  introduced,  and  costly  structures  and  "  plant "  are  re- 
quired.     Great  numbers  of  operatives,  of  both  sexes  and  all 
ages  and  of  every  degree  of  strength  and  skill,  have  to  be 
gathered  under  one  roof,  each  knowing  only  his  or  her  own 
part ;  all  requiring  to  be  instructed  and  equipped,  organized, 
•energized,  and  directed  by  the  intelligence  and  will  of  one 
man.  In  other  words,  we  have  reached  the  entrepreneur  stage 
(pars.  106-9)  of  industrial  development. 

The  introduction  of  the  principle  of  mastership  into  indus- 
try makes  a  great  gain  of  productive  power  ;  but  this  gain  is 
not  secured  without  an  appreciable  loss.  The  entrepreneur 
(to  anticipate,  for  a  moment,  a  topic  in  Distribution),  finds 
his  motive  for  organizing  and  conducting  the  great  enterprises 
of  modern  industry  in  the  profits  (pars.  302,  429)  which  he 


174  POLITICAL  ECONOMY. 

hopes  individually  to  realize.  His  entire  personal  interest  is 
found  here.  It  is,  perhaps,  to  secure  a  net  profit  of  twenty 
thousand  dollars,  that  he  leases  land  and  buildings,  and  bor- 
rows capital,  and  hires  the  labor  requisite  to  achieve  an  annual 
product  of  half  a  million  of  dollars.  If,  then,  the  conditions 
of  trade  and  industry  are  such  as  to  destroy  for  the  time  Ins 
profit  ;  much  more  if  they  are  such  as  to  threaten  a  loss  which 
will  impair  the  integrity  of  the  capital,  his  interest  in  pro- 
duction is  greatly  diminished,  if  not  destroyed.  He  will 
either  cease  producing  entirely,  or,  which  is  more  likely,  will 
contract  the  scope  of  his  operations.  Were  he  to  produce 
$500,000  worth,  as  heretofore,  a  small  fraction  of  his  stock 
unsold  might  sweep  away  his  own  gains  for  the  year,  or  leave 
a  deficit ;  whereas,  were  he  to  produce  but  $400,000  or 
$350,000  worth,  he  would  probably  dispose  of  his  stock  at 
prices  high  enough  to  make  himself  good  and  perhaps  leave  a 
small  margin  of  profit,  while  holding  his  laboring  force  and 
his  customers  together. 

232.  Fluctuations  in  Production. — Such  being  the  con- 
ditions under  which  production  takes  place,  under  the  modern 
organization  of  industiy,  we  note  that  there  is  in  the  nature 
of  the  case  a  continuous  loss  through  the  failure  of  the  pro- 
ducing body  to  meet,  promptly  and  precisely,  the  demands  of 
the  body  of  consumers.  Wherever,  from  any  cause,  there  is  a 
failure  correctly  to  anticipate  those  demands  and  supply  them 
perfectly,  in  time,  in  degree,  in  form,  loss  of  value  results. 
That  there  should  be  such  failure  in  part,  is  inevitable. 

But  the  loss  which  we  had  chiefly  in  view  in  beginning  this 
chapter,  and  with  reference  to  which  we  have  written  this 
long  introduction,  is  not  the  steady,  continuous  loss  of  value 
due  to  the  inability  of  those  who  direct  production  to  com- 
prehend, fully  and  seasonably,  the  varying  demands  of  distant 
markets.  It  is  the  occasional  loss  resulting  from  the  frequent 
and  often  furious  fluctuations  which  are  involved  in  the 
modern  organization  of  trade  and  industry. 

From  that  organization  the  alternation  of  highly  stimulated 
and  of  deeply  depressed  production  appears  to  be  inseparable. 
The  course  of  trade  and  industry  through  the  cycle  which  the 


THE   COMMERCIAL   CRISIS.  175 

conditions  of  modern  life  seem  to  have  established,  is  so  well 
described  by  Prof.  Alfred  Marshall  that  I  can  not  forbear  to 
give  it  in  full  : 

"The  beginning  of  a  period  of  rising  credit  is  often  a 
series  of  good  harvests.  Less  having  to  be  spent  in  food, 
there  is  a  better  demand  for  other  commodities.  Producers 
find  that  the  demand  for  their  goods  is  increasing,  they 
expect  to  sell  at  a  profit,  and  are  willing  to  pay  good  prices 
for  the  prompt  delivery  of  what  they  want.  Employers  com- 
pete with  one  another  for  labor  ;  wages  rise  ;  and  the  employed 
in  spending  their  wages  increase  the  demand  for  all  kinds  of 
commodities.  New  public  and  private  companies  are  started, 
to  take  advantage  of  the  promising  openings  which  show 
themselves  among  the  general  activity.  Thus  the  desire  to 
buy  and  the  willingness  to  pay  increased  prices  grow 
together  ;  credit  is  jubilant  and  readily  accepts  paper  prom- 
ises to  pay.  Prices,  wages  and  profits  go  on  rising  ;  there  is 
a  general  rise  in  the  incomes  of  those  engaged  in  trade  ;  they 
spend  freely,  increase  the  demand  for  goods,  and  raise  prices 
still  higher.  Many  speculators,  seeing  the  rise,  and  thinking 
it  will  continue,  buy  goods  with  the  expectation  of  selling 
them  at  a  profit.  At  such  a  time  a  man  who  has  only  a  few 
hundred  pounds  can  often  borrow  from  bankers  and  others 
the  means  of  buying  many  thousand  pounds'  worth  of  goods  ; 
and  every  one  who  thus  enters  into  the  market  as  a  buyer, 
adds  to  the  upward  tendency  of  prices,  whether  he  buys  with 
his  own  or  with  borrowed  money. 

"  This  movement  goes  on  for  sometime,  till  at  last  an  enor- 
mous amount  of  trading  is  being  carried  on  by  credit  and  with 
borrowed  money.  Old  firms  are  borrowing,  in  order  to  extend 
their  business  ;  new  firms  are  borrowing  in  order  to  start 
their  business  ;  and  speculators  are  borrowing,  in  order  to  buy 
and  hold  goods.  Trade  is  in  a  dangerous  condition.  Those 
whose  business  it  is  to  lend  money  are  among  the  first  to 
read  the  signs  of  the  times  ;  and  they  begin  to  think  about 
contracting  their  loans.  But  they  can  not  do  this  without  much 
disturbing  trade.  If  they  had  been  more  chary  of  lending  at 
an  earlier  stage,  they  would  simply  have  prevented  some  new 


176  POLITICAL  ECONOMY. 

business  from  being  undertaken  ;  but  when  it  is  once  under- 
taken, it  can  not  be  abandoned  without  a  loss  of  much  of  the 
capital  that  has  been  invested  in  it.  Trading  companies  of  all 
kinds  have  borrowed  vast  sums  with  which  they  have  begun 
to  build  railways  and  docks  and  ironworks  and  factories  ; 
prices  being  high  they  do  not  get  much  building  done  for  their 
outlay  ;  and  though  they  are  not  yet  ready  to  reap  profits  on 
their  investment,  they  have  to  come  again  into  the  market  to 
borrow  more  capital.  The  lenders  of  capital  already  wish  to 
contract  their  loans  ;  and  the  demand  for  more  loans  raises  the 
rate  of  interest  very  high.  Distrust  increases  ;  those  who  have 
lent  become  eager  to  secure  themselves  and  refuse  to  renew 
their  loans  on  easy  or  even  on  any  terms.  Some  speculators 
have  to  sell  goods  in  order  to  pay  their  debts  ;  and  by  so  doing 
they  check  the  rise  of  prices.  This  check  makes  all  other 
speculators  anxious,  and  many  rush  in  to  sell.  For  a  specula- 
tor who  has  borrowed  money  at  interest  to  buy  goods  may 
be  ruined  if  he  holds  them  a  long  time  even  while  their  price 
remains  stationary  ;  he  is  almost  sure  to  be  ruined  if  he  holds 
them  while  their  price  falls.  When  a  large  speculator  fails, 
his  failure  generally  causes  that  of  others  who  have  lent  their 
credit  to  him  ;  and  their  failure  again  that  of  others.  Many 
of  those  who  fail  may  be  really  '  sound,'  that  is,  their  assets 
may  exceed  their  debts.  But  though  a  man  is  sound,  some 
untoward  event,  such  as  the  failure  of  others  who  are  known 
to  be  indebted  to  him,  may  make  his  creditors  suspect  him. 
They  may  be  able  to  demand  immediate  payment  from  him, 
while  he  can  not  collect  quickly  what  is  owing  to  him  ;  and  the 
market  being  disturbed  he  is  distrusted  ;  he  can  not  borrow, 
and  he  fails.  As  credit  by  growing  makes  itself  grow,  so 
when  distrust  has  taken  the  place  of  confidence,  failure  and 
panic  breed  panic  and  failure.  The  commercial  storm  leaves 
its  path  strewn  with  ruin.  When  it  is  over,  there  is  a  calm, 
but  a  dull,  heavy  calm.  Those  who  have  saved  themselves  are 
in  no  mood  to  venture  again  ;  companies  whose  success  is 
doubtful  are  wound  up  ;  new  companies  can  not  be  formed. 
Coal,  iron  and  the  other  materials  for  making  fixed  capital 
fall  in  price  as  rapidly  as  they  rose.  Iron  works  and 


PERIODICITY  OF  PANICS.  177 

shipe  are  for  sale,  but  there  are  no  buyers  at  any  moderate 
price. 

"  Thus  the  state  of  trade,  to  use  the  famous  words  of  Lord 
Overstone,  *  revolves  apparently  in  an  established  cycle.  First 
we  find  it  in  a  state  of  quiescence — next  improvement,  growing 
confidence,  prosperity,  excitement,  overtrading,  convulsion, 
pressure,  stagnation,  distress,  ending  again  in  quiescence.' " 

233.  Periodicity  of  Panics.— So  frequently  have  trade  and 
industry  made  this  weary  round,  that  the  writers  on  finance 
have  undertaken  to  establish  the  law  of  the   periodicity  of 
panics  and  hard  times.     The  term  of  ten  years  is  that  most 
often  fixed  upon  for  the  completion  of  the  cycle.     There  is  at 
least  a  very  curious  series  of  coincidences  to  give  some  sub- 
stance to  this  hypothesis. 

But  whether  there  are,  indeed,  forces  operating  which  bring 
about  commercial  convulsions  and  industrial  "distress  at  regu- 
lar intervals,  or  not,  it  seems  clear  that,  under  the  conditions 
depicted  in  the  first  part  of  this  chapter,  it  is  inevitable  that 
the  producing  and  exchanging  body  should  alternate  fre- 
quently and  even  violently  between  a  state  of  depression  and 
partially  suspended  activity,  and  a  state  of  highly  animated, 
excited,  almost  convulsive  exertion,  in  which  the  agencies 
alike  of  production  and  of  exchange  are  strained  to  their  ut- 
most to  meet  demands  which  are  stimulated  to  the  highest 
extravagance  by  a  universal  passion  of  speculation. 

234.  Loss  of  Productive  Force. — It  is  evident  that  this  is 
not  an  order  of  things  under  which  the  largest  production  of 
wealth  takes  place.     The  two  extremes  do  not  offset  each 
other,  with  the  same  resxilt  as  if  production  had  been  proceed- 
ing calmly  and  equably  through  the  entire  period.     On  the 
contrary,  each  extreme  involves  great  and  permanent  loss  of 
productive   force.     There  is  much  misdirection   of   energy, 
much  waste  of  material,  much  vital  injury  to  labor  power  and 
capital  power,  in  the  haste  and  strain  and  fever  of  highly 
stimulated  effort. 

On  the  other  hand,  the  long,  dull  spell  of  inactivity  that 
succeeds  is  not  given  wholly  to  recuperation  of  exhausted  en- 
ergies, renewal  of  stocks  of  materials,  repair  of  machinery  and 


178  POLITICAL  ECONOMY. 

plant.  It  is  not  a  waste  of  time,  merely,  involving  a  propor- 
tional loss  of  productive  power  :  that  inactivity  becomes  itself  a 
cause  of  mischief.  It  induces  in  the  working  classes  a  lethargy, 
a  despondency,  a  recklessness,  which  are  forces  productive  of 
evil.  It  generates  habits  of  lounging  and  of  drinking,  perhaps 
of  tramping,  which  may  not  be  shaken  off  even  with  renewed 
employment. 

235.  "Hard  Times." — Nothing  needs  to  be  added,  of 
clearness  or  of  force,  to  Prof.  Marshall's  statement  of  the 
course  which  trade  and  industry  run  from  the  time  they  first 
cross  the  line  of  reviving  prosperity  to  the  moment  they 
plunge  into  the  abyss  of  broken  credit,  falling  markets,  com- 
mercial panic,  failing  banks,  and  general  distress.  But  there 
is  one  industrial  phenomenon  of  great  significance  in  respect 
to  our  question,  why  the  actual  production  of  a  community 
comes  so  far  short  of  its  productive  capability  ?  which  econo- 
mists have  not  been  accustomed  to  explain  :  this  is,  the  long 
continuance  of  the  periods  of  industrial  depression  and  of 
restricted  production. 

It  will  readily  appear  that,  after  running  such  a  rig  as  has 
been  described,  the  agencies  of  trade  and  industry  will  require 
time  to  refit.  The  track  must  be  cleared  of  the  wreck.  The 
places  left  vacant  by  the  casualties  of  the  great  crash  must  be 
filled  by  new  men.  But  the  actual  time  covered  by  the  period 
of  depression  is  sometimes  much  longer  than  can  be  accounted 
for  by  the  mere  loss  and  destruction  of  a  panic.  "Hard 
Times  "  are  protracted  long  after  the  capital  power  and  the 
labor  power  of  the  community  are  in  condition  to  resume  their 
interrupted  functions. 

For  several  years  after  the  panic  of  1873,  in  the  United 
States,  industry  did  not  reach  its  former  proportions.  During 
that  period  vast  amounts  of  labor  power  and  capital  power 
remained  unproductive.  Tens  of  thousands,  if  not  hundreds 
of  thousands,  of  laborers  were  unemployed  ;  an  even  greater 
number  were  employed  only  on  half  or  three-quarters  time. 
Hundreds  of  furnaces  were  out  of  blast ;  thousands  of  water- 
wheels  ceased  to  turn  ;  thousands  of  engines  stood  still.  Yet, 
during  this  time,  these  workmen  had  occasion  to  consume 


THE   INDUSTRIAL    CRISIS.  179 

food  and  clothing  for  themselves  and  their  families  ;  needed  to 
work  to  earn  the  means,  and  were  honestly  willing,  yea,  heart- 
ily desirous  to  work.  All  this  time  the  owners  of  capital 
were  ready  to  secure  a  return  for  their  investments,  if  they 
could  find  opportunity  ;  the  conductors  of  business  were  eager 
to  win  a  profit  by  employing  their  abilities  and  experience  in 
productive  industry.  Why,  then,  was  it,  when  all  were  will- 
ing to  work  and  needed  to  work,  that  they  did  not  work? 
"NVhat  was  the  force  that  kept  these  laboring  men,  these 
water-wheels  and  engines,  these  capable  conductors  of  busi- 
ness, idle  so  long  ? 

236.  Diversified  Production. — We  have  seen  that,  as  so- 
ciety makes  progress  toward  a  minuter 'organization  of  indus- 
try, productive  capability  is  enhanced,  but  that,  coincidently, 
at  each  stage,  the  opportunities  for  misunderstanding  between 
the  body  of  producers  and  the  body  of  consumers  are  greatly 
multiplied,  while  labor  power  and  capital  power  fall  more 
under  the  control  of  men  of  exceptional  abilities,  with  whom 
comes  to  rest  all  initiative  in  production. 

Now,  if  we  examine  the  list  of  articles  sold  in  the  market, 
in  a  modern  community,  we  shall  find  some  of  them  supplying 
wants  which  are  constant  and  vital.  We  shall  find  others 
which  minister  to  the  most  delicate  tastes  or  gratify  only  the 
merest  casual  fancies.  In  a  country  like  England,  France,  or 
the  United  States,  tens  of  thousands  of  laborers  are  employed 
in  producing  articles  of  the  most  trivial  character:  fireworks, 
toys,  bonbons,  fripperies  of  dress,  while  hundreds  of  thousands 
more  are  employed  in  producing  articles  deprivation  of  which 
would  not  induce  cold  or  hunger,  or  impair  health,  or  be 
incompatible  with  public  decency  or  personal  self-respect. 

237.  Propagation  of  Economic  Shocks. — Let  us  suppose, 
as  the  result  of  a  period  of  prosperity,  the  variety  of  products 
to  have  been  carried  to  a  very  high  point,  when  a  disaster, 
primarily  affecting  either  industry  or  trade,  it  matters  not, 
befalls  a  community.     It  may  be  a  great  fire,  or  a  great  flood, 
or  an  epidemic  of  yellow  fever,  or  the  destruction  of  some 
leading  crop.     No  matter  where  it  comes  from,  or  where  it 
first  strikes,  the  immediate  effect  is  to  diminish  the  productive 


l8o  POLITICAL  ECONOMY. 

power  of  the  community,  as  a  whole.  At  once  the  consump- 
tion of  those  articles  which  are  least  essential  to  comfort  and 
decency  is  checked.  If  we  suppose  the  thousands  of  articles 
known  to  the  market  to  form  twenty-six  groups,  A  to  Z,  their 
utility  to  the  consumer  regularly  declining  from  the  top  of 
the  list  to  the  bottom,  we  may  assume  that  the  first  effect  of 
the  calamity  will  be  to  reduce  the  consumption  of  articles 
forming  groups  X,  Y  and  Z.  No  matter,  as  we  said,  where 
the  blow  first  falls,  the  laborers  affected  produce  for  the  time 
less,  and  must  limit  their  own  consumption  accordingly, 
which  they  do  by  restricting  their  use  of  articles  below  W. 

The  labor  and  capital  employed  in  groups  X,  Y  and  Z, 
can  not  easily  or  soon  be  transferred  to  other  groups.  The 
laborers,  especially,  find  that  the  present  is  no  time  to  seek 
employment  in  other  avocations.  They  must  stay  where  they 
are,  and  do  the  best  they  can  there.  Hence  they  find  them- 
selves employed  on  part  time,  and  at  reduced  wages.  The 
sums  they  formerly  earned  were  expended  in  purchasing 
articles  all  the  way  from  A  to  Z.  In  their  sudden  poverty 
they  are  obliged  to  cut  off  their  own  consumption  of  all 
articles  except  those  which  are  necessary  to  comfort  and 
decency,  say  from  A  to  M,  inclusive. 

But  this  action  of  producers  X,  Y  and  Z  involves  a 
diminished  demand  for  products,  N  to  W.  Each  group  of 
producers,  at  this  end  of  the  line,  are  obliged  to  curtail  still 
further  their  consumption  of  articles  X,  Y  and  Z,  while  pro- 
ducers from  S  to  W  begin  to  restrict  their  use  of  articles 
below  T.  This  action,  however,  becomes  at  once  the  cause  of 
new  effects.  The  unfortunate  representatives  of  X,  Y  and  Z 
are  now  obliged  wholly  to  deny  themselves  all  products  from 
H  downwards  ;  producers  T  to  W,  in  turn  have  to  give  up 
indulgence  in  products  below  N  ;  producers  N  to  S,  in  conse- 
quence, no  longer  purchase  products  below  R. 

The  shock  next  reaches  groups  I  to  M,  who  have  to  diminish 
their  consumption,  to  correspond  to  the  reduced  demand  for 
their  own  products  ;  X,  Y  and  Z  are  now  glad  to  get  enough 
of  A,  B,  C  and  D  to  barely  subsist  upon  ;  while  S,  T,  D,  U, 
V  and  W  carry  their  retrenchment  upwards,  till  they  stop  at 


AGGRAVATION  OF  ECONOMIC  SHOCKS.  181 

M.  And  so  the  movement  goes  forward  until  the  favored 
producers  A  to  D — favored,  in  that  the  articles  they  produce 
are  of  vital  importance — experience  some  diminution  of  de- 
mand, and,  producing  less  in  consequence,  have  less  to  give  in 
exchange  for  the  products  of  others.  So  a  stone,  thrown  into 
a  lake,  sets  in  motion  a  wave  which  extends  outwards  in  all 
directions  till  it  reaches  the  bank,  even  in  the  most  retired 
nook  along  the  shore. 

238.  Aggravation  of  Economic  Shocks.  —  It   is   evident 
that,  were  the  community  perfectly  intelligent  and  self-pos- 
sessed, the  ultimate  result  of  this  play  of  forces  would  be  the 
distribution  of  the  whole  initial  shock  over  the  entire  produc- 
ing body.     No  addition  would  be  made  to  the  shock  as  the 
movement  proceeded,  and   the   effect  upon  each  successive 
group  of  producers  reached  would  be  less  and  less.     Those 
producing  articles  the  most  essential  to  life,  health  and  social 
decency  would  suffer  to  hardly  an  appreciable  extent,  as  the 
wave  set  in  motion  by  the  rock  thrown  into  the  lake  becomes 
the  merest  ripple  against  the  shore. 

This  is  all  that  is  necessarily  involved  in  the  propagation, 
through  economic  media  of  perfect  elasticity,  of  an  original 
blow  like  that  assumed.  In  fact,  industrial  injuries  are  at 
times  distributed  in  this  way  throughout  the  producing  body, 
without  panic,  without  apprehension,  even  without  observa- 
tion. 

Let,  however,  the  shock  be  sharp  and  severe,  and  com- 
municated in  some  startling  form,  and  let  it  occur  when  the 
public  mind  is  in  an  apprehensive  mood,  or  when  the  com- 
mercial body  is  unstrung  by  political  or  social  disturbances, 
and  we  may  see  the  impulse  propagated  with  increasing  force, 
from  subject  to  subject,  till  the  movement  acquires  fearful 
violence. 

239.  The  Industrial  Panic. — The   commercial   panic   we 
are  all  familiar  with,  by  experience1  or  report.     We  know  how 
some  slight  cause,   acting  on  the  fears  and  imaginations  of 
men,  will  overthrow  the  financial  structure  of  a  nation  in  a 
few  weeks,  perhaps  days,  prostrating  the  proudest  houses, 
and  spreading  ruin  far  around.     There  is  nothing  that  can 


182  POLITICAL  ECONOMY. 

stand  against  panic.  One  man's  fear  makes  another  man 
afraid.  One  man'8  fall  brings  down  another,  who,  but  for 
that,  might  have  stood  firm  ;  and  thus  the  mischief  proceeds, 
from  bad  to  worse.  So  much  for  the  trading  body. 

The  progressive  aggravation  and  acceleration  of  the  forces 
of  mischief  throughout  the  producing  body  takes  place  not 
less  surely,  though  it  is  here  less  ostensive. 

A  manufacturer  feels  the  demand  for  his  goods  fall  off 
somewhat.  In  ordinary  times  he  would  receive  the  fact  as  an 
intimation  to  reduce  his  production,  but  only  to  a  correspond- 
ing extent.  Indeed,  in  good  times  he  would  receive  that 
intimation  in  a  somewhat  skeptical  spirit.  He  would  not  be 
disposed  to  believe  that  any  serious  check  was  to  be  ex- 
perienced. He  would  look  to  see  trade  start  up  again,  and,  in 
this  mood,  would  reduce  his  production  somewhat  less  than 
correspondingly.  To  that  extent,  he  would  speculate  :  that  is, 
would  anticipate  events  and  discount  the  future.  For  the 
moment,  then,  he  would  transmit  the  shock,  not  aggravated 
but  mitigated. 

But  let  the  shock  be  at  first  severe,  and  let  it  come  upon 
the  public  mind  in  a  suspicious  mood,  and  the  matter  will  take 
another  turn.  The  merchant  feels  the  demand  for  his  goods 
fall  off  abruptly.  He  fears  there  is  more  to  come.  He  is 
determined  not  to  be  caught  with  a  large  stock  on  his  hands, 
and,  in  his  orders  to  the  manufacturer,  he  exaggerates  the 
natural  and  proper  effect  of  the  change  in  the  market.  The 
manufacturer,  on  his  part,  knows  nothing  dii'ectly  of  the 
actual  falling  off  in  demand.  He  only  learns  it  as  it  comes  to 
him  heightened  by  the  apprehensions  of  the  merchant.  In 
his  turn,  he  exaggerates  the  evil  and  reduces  his  production 
more  than  proportionally.  His  anxiety  now  is,  not  to  make 
a  profit,  but  to  avoid  loss.  He  knows  he  will  be  safe  if  he 
runs  his  mill  on  half  or  three-quarters  time. 

And  it  is  here  that  the  cause  indicated  in  par.  231  begins 
to  operate  with  great  and  destructive  force.  The  entrepre- 
neur's personal  concern  in  production  being  derived  wholly 
from  his  contemplated  profit,  which  may  be  but  a  small  per- 
centage of  the  value  of  the  goods  produced,  his  individual 


HOW  FAR  MAY    THIS   GO?  183 

interests  may,  for  the  time,  become  divorced  from  those  of 
his  laborers  or  of  the  general  community.  In  his  anxiety  to 
save  himself,  he  may  act  with  as  much  needless  cruelty  as 
men  do  when  panic-stricken  in  a  fire  or  a  wreck. 

240.  But  the  action  of  manufacturer  Z,  whether  wisely  or 
unwisely  taken,  becomes,  as  we  have  seen,  an  element  in  the 
conditions   of  production  for  all   the   lower   letters   of   the 
alphabet.     As  he  pays  less  wages,  his  workmen  have  less  to 
spend  for  the  products  of  other  branches  of  industrv.     The 
merchants  in  these  lines,  feeling  the  falling  off  in   demand, 
exaggerate  it  in  their  orders    to   manufacturers,    especially 
manufacturers  X  and  Y.     These,  in  turn,  apprehensive   of 
worse  to  come,  curtail  their  operations  more  than  correspond- 
ingly,   and    so    the    movement    proceeds,    with    increasing- 
violence. 

And,  let  us  repeat,  however  unnecessary "  Z's  action  in 
reducing  his  production  below  a  certain  point,  yet,  if  he 
actually  does  so,  that  action  makes  a  corresponding  reduction 
in  X  and  Y's  operations  a  necessity  of  their  situation  :  just  as 
truly  so  as  if  Z  had  a  good  reason  for  what  he  did.  And  if, 
in  turn,  X  and  Y  become  alarmed,  and  overdo  the  thing,  that 
of  itself  constitutes  an  obligation  upon  manufacturers  higher 
in  the  alphabet  to  cut  down  work  and  wages. 

241.  How  Par  may  this  be  Carried  ? — Two  questions  arise 
upon  this  view  of  the  power  of  apprehension  and  suspicion  to 
aggravate  the  force  of  any  industrial  or  financial  shock.    The 
first :  how  far  may  it  be  carried  ?  the  second,  how  long  may 
it  last  ? 

May  the  movement  to  check  production  proceed  until  all 
industry  is  locked  fast  in  "  a  vicious  circle  "  :  no  one  produc- 
ing, because  others  will  not  consume,  while  no  one  is  able  to 
consume  the  products  of  others  because  he  himself  produces 
nothing  with  which  to  buy  them  ? 

I  answer,  no.  The  staple  industries,  especially  those  yield- 
ing the  necessaries  of  life,  will  never  be  suspended.  The 
demand  for  their  products  is  so  constant  and  certain  that 
panic  has  little  power  over  them.  Groups  A  to  D  will,  there- 
fore, continue  to  produce  nearly  as  much  as  before  ;  not,. 


184  POLITICAL  ECONOMY. 

indeed,  quite  so  much,  because  there  will  be  individuals, 
thrown  out  by  the  revolution  at  the  foot  of  the  alphabet,  who 
are  unable  to  find  a  new  place  where  they  can  produce  enough 
to  purchase  even  the  barest  subsistence.  Groups  E  to  H,  or 
K,  moreover,  having  to  do  with  articles  essential  to  comfort 
and  social  decency,  will  withstand  the  shock  communicated 
to  them  sufficiently  to  maintain  a  production  not  very  far 
below  that  of  good  times. 

Now,  so  long  as  A  to  D  produce  liberally,  and  E  to  H  or 
K,  still  produce  considerably,  all  persons  employed  within 
those  groups  will  have  the  means  of  purchasing  the  products 
of  groups  further  down  the  list  ;  and  so  industry  will  be  kept 
alive,  though  but  just  alive,  in  those  groups  which  produce 
articles  not  essential  to  life,  or  health,  or  decency. 

242.  How  Long  may  such  a  Condition  Last  ? — I  answer:  in 
theory,  it  may  last  indefinitely.  Practically,  it  is  liable  to  be 
terminated,  after  a  longer  or  shorter  period  of  suspense,  by 
reviving  courage  and  enterprise  on  the  part  of  men  of  affairs, 
or  through  the  stimulus  to  production  administered  from 
some  quarter.  It  may  be  so  slowly  as  to  be  almost  imper- 
ceptible ;  it  may  be  so  rapidly  as  to  outrun  calculation, 
that  the  expansion  takes  place.  This  will  depend  much 
on  the  natural  temper  of  the  community  ;  much  on  the 
immediate  cause  provoking  renewed  enterprise ;  much  on 
accident. 

The  one  essential  condition  is  that  speculation  be  initiated, 
that  is,  that  men  begin  to  look  ahead,  to  anticipate  demand, 
and  to  discount  the  future. 

One  man  begins  to  produce,  no  longer  on  orders,  no  longer 
cautiously  and  fearfully,  as  if  it  were  too  much  to  believe 
that  his  goods  will  be  taken  off  his  hands,  but  in  a  sanguine 
spirit,  assuming  the  initiative  in  production,  and  boldly 
encountering  its  risks.  Producing  more  largely,  his  workmen 
have  more  to  offer  for  the  products  of  other  industries,  which 
is  of  itself  a  reason  for  a  larger  production  in  these  branches, 
whose  managers  and  proprietors  respond  in  the  same  spirit. 
Finding  the  demand  increasing,  they  act  as  if  they  believed  it 
were  about  to  increase  still  further.  They  produce  somewhat 


HOW  LONG  MAY  IT  LAST?  185 

in  anticipation,  and  thus  give  their  hands  more  to  offer  in 
exchange  for  the  products  of  still  other  industries.  From 
day  to  day  the  movement  proceeds,  gathering  force  as  it 
goes,  and  production  swells  continually  under  the  contagious 
influence  of  hope  and  courage,  just  as  before  it  shrank  and 
shriveled  under  the  breath  of  fear  and  panic. 

I  have  said  that  peculiarities  of  national  character  have 
much  to  do  with  the  speedy  or  tardy  revival  of  production. 
Nowhere  ought  recovery  to  be  more  rapid  than  in  the  United 
States.  Among  no  people  is  there  more  of  elasticity,  greater 
alertness  of  action,  more  readiness  to  assume  responsibilities 
and  to  run  risks.  Nowhere,  too,  does  nature  afford  an  ampler 
margin  for  subsistence,  or  more  abundant  material  for  the  re- 
pair of  mistakes  and  misadventures. 

243.  Two  Examples.— The  history  of  the  panic  of  1857 
offers  a  capital  illustration  of  the  facility  with  which  the 
American  people  recover  from  the  sharpest  contraction  of  pro- 
ductive industry,  where  nothing  withstands  the  revival  of 
trade,  and  where  no  second  shock  remains  to  be  experienced. 
The  country  was  in  a  generally  sound  condition,  both  as  to 
capital  and  credit,  when  the  blow  fell.  As  the  result,  industry 
had  scarcely  shrunk  to  its  minimum,  under  the  influence  of 
panic,  when  the  enterprise  and  courage  of  merchants  and  man- 
ufacturers began  to  cause  expansion.  Within  a  few  months 
production  was  again  at  the  limits  of  our  capital  power  and 
labor  power. 

When  the  panic  of  1837  came,  the  country  was  in  a  wretched 
condition,  through  the  misapplication  of  capital  and  the  wide 
extension  of  credit. 

The  buoyancy  of  the  national  temper  led,  even  at  this  time, 
to  a  speedy  revival  ;  but  the  succeeding  shock  of  1839  threw 
the  country  back  again,  and  the  fear  and  distrust  thereby  en- 
gendered kept  the  energies  of  the  nation  in  a  state  of  partial 
repression  through  a  long  period.  Such  may  be  the  influence 
of  a  single  instance  of  hard  fortune  upon  reviving  industry. 

Quite  as  prejudicial  to  expanding  production  is  the  contin- 
ual apprehension  of  hostile  or  meddlesome  legislation.  When 
the  whole  body  of  business  men  are  sore  from  disasters  ;  when. 


1 86  POLITICAL  ECONOMY. 

much  of  the  industrial  and  commercial  structure  still  lies  in 
ruins,  it  takes  but  little  to  check  the  disposition  again  to 
adventure  capital.  That  little  is  abundantly  supplied  by  the 
popular  apprehension  of  legislation  unfavorably  affecting 
money  and  credit.  It  need  not  be  a  great  thing  under  a 
man's  arms  which  will  so  increase  his  margin  of  buoyancy  as  to 
enable  him  to  float  for  hoNrs.  It  is  a  very  small  thing  around 
a  man's  neck  which  will  so  diminish  his  margin  of  buoyancy — 
narrow  at  the  best — as  to  drag  him  to  the  bottom. 


PART 


DISTRIBUTION. 


CHAPTER  I. 

THE    PARTIES    TO    THE    DISTRIBUTION   OF   WEALTH. 

244.  Distribution  as  a  Department  of  Political  Economy. 
— Under  the  title,  Distribution,  we  inquire,   what   are  the 
forces  which  divide  wealth  among  the    several   persons,  or 
classes  of  persons,  who  have  taken  part  in  its  production  ? 

In  a  primitive  condition  of  society,  the  problem  of  distribu- 
tion is  a  simple  one.  Three  hunters  join  in  an  expedition,  and 
at  the  conclusion  of  the  chase,  divide  their  game  into  three 
equal  parts.  If  boys,  or  cripples,  or  men  of  less  than  ordinary 
force  or  skill,  are  taken  into  the  partnership,  it  is  easily  determ- 
ined what,  portion  of  a  full  man's  share  each  such  person 
shall  receive. 

In  a  highly  organized  community,  however,  the  division  of 
the  product  of  industry  into  shares  corresponding  to  the  num- 
ber of  persons  who  have  taken  part  in  production,  is  a  com- 
plicated problem. 

245.  The  Division  of  the  Web  of  Cloth. — For  example, 
let  us  take  the  case  of  a  cotton  factory,  at  Lawrence,  which 
produces  in  a  given  time  a  million  yards  of  cloth.     We  may 
suppose  that  this  is  all  woven  in  one  piece,  and  that  each  per- 
son who  has,  in  any  way,   contributed  to  making  this  giant 
web,  advances  in  a  certain  order  to  receive  his  share. 

The  agent  for  the  water  company  first  appears,  and  cuts  off 
some  thousands  of  yards,  inasmuch  as  his  company  furnished 
the  power  that  drove  the  wheels  below,  that  turned  the  spin- 
dles above.  Then  comes  the  owner  of  the  land  on  which  the 


1 88  POLITICAL  ECONOMY. 

mill  is  built,  and  carries  off,  perhaps,  a  piece  five  times  as 
large  ;  next,  the  owner  of  the  mill,  who  takes  the  largest  piece 
of  all ;  next,  the  man  who  gave  the  use  of  the  machinery  and 
loaned  the  working  capital,  and  now  measures  off  many  miles 
of  the  cloth  as  his  share. 

So  far,  all  has  gone  smoothly.  Though  the  manufacturer 
has  stood  by  and  seen  the  fearful  inroads  made  upon  the  web 
by  the  successive  claimants,  little  has  been  said,  and  that  in  a 
low  tone  and  in  a  business-like  way.  Some  reason  is  known 
to  the  manufacturer  why  each  of  these  persons  should  receive 
so  much  and  no  less.  Some  calculation  which  he  is  able  rap- 
idly to  make  maintains  a  complete  understanding  between 
him  and  them. 

Now,  however,  the  scene  changes  ;  there  remain  but  two 
parties  as  claimants  to  the  six  or  seven  hundred  thousand 
yards  that  are  left.  On  the  one  side  we  see  a  crowd  composed 
of  persons  engaged  in  the  mill  as  overseers,  as  clerks,  as 
mechanics,  as  laborers,  as  "  operatives,"  in  all,  some  hundreds 
of  men,  women  and  children,  of  varying  degrees  of  strength, 
skill  and  intelligence  ;  on  the  other  side,  stands  the  manufac- 
turer. All  that  these  do  not  take,  will  be  his  ;  and  as  piece 
after  piece  is  rapidly  cut  off,  he  seems  to  fear  that  not  enough 
will  remain  for  him,  while  each  of  them  appears  disaffected 
that  his  own  share  is  not  larger,  deeming  it  especially  a  hard- 
ship that,  after  he  and  his  comrades  are  served,  so  much  will  be 
left  to  the  manufacturer.  According  to  their  several  dispo- 
sitions, some  threaten  that  it  shall  not  be  so  again  ;  some 
merely  grumble  ;  others  take  up  their  little  rolls  of  cloth  and 
walk  away  with  a  patient  air,  as  if  they  hoped  for  nothing 
better. 

At  last  the  manufacturer  is  left  with  his  share.  If  it  has 
been  a  good  season,  and  all  has  gone  well  ;  if  the  cotton  has 
turned  out  of  good  quality,  if  the  weather  has  been  propi- 
tious, with  just  enough  of  heat  and  of  moisture  for  the  quick- 
est and  most  uniform  spinning  ;  if  there  have  been  no  floods 
in  the  river,  giving  trouble,  and  no  low  water,  so  that  the 
wheel  has  turned  steadily  and  powerfully  whenever  the  gate 
was  lifted,  the  roll  of  cloth  which  the  manufacturer  will  carry 


SERVICES   VS.    COMMODITIES.  189 

back  into  the  warehouse  will  be  large,  and  his  face  will  wear 
a  contented  look.  If,  on  the  other  hand,  any  one  of  a  dozen 
untoward  accidents,  reasonably  to  be  apprehended,  has 
occurred,  his  share  will  be  less,  perhaps  little,  possibly  nothing. 

246.  The  Problem  of  Distribution. — It  is  under  the  pres- 
ent title  that  we  inquire  why  it  is  that  each  of  these  claimants 
on  the  product  of  the  cotton  factory  takes  so  much  and  takes 
no  more.     Of  course,  in  the  immediate  instance  that  reason  is 
found  in  the  force  of  contract.     All  the  other  parties  had 
agreed  with  the  manufacturer  to  allow  him  the  use  of  their 
property,   or  to  render  him  their  services,   at  certain  rates. 
But  why  did  they  contract  at  those  rates,  and  not  at  higher  ; 
and  why  will  they,  as  they  probably  will,  immediately  proceed 
to  make  new  contracts,  at  the  same,  perhaps  at  lower  rates  ? 

Why,  in  particular,  is  it  that  the  division  of  the  product  is 
effected  with  so  little  of  friction  or  complaint,  as  between  the 
manufacturer  and  the  water  company,  the  owner  of  the 
ground,  the  owner  of  the  mill,  the  owner  of  the  machinery 
and  of  the  working  capital ;  while  between  the  manufacturer 
and  the  "  hands  "  there  is  so  much  of  dissatisfaction  and 
jealousy,  of  complaint  and  irritation  ? 

247.  Distinction  between  the  Exchange  of  Services  and 
of  Commodities. — Among  those  writers  who  have  defined 
political  economy  as  the  Science  of  Exchanges,  distribution  is 
not  recognized  as  a  separate  department  of  inquiry,  involv- 
ing principles  peculiar  to  itself.      These  writers  find  that  the 
subjects  of  exchange  are,  broadly  speaking,  two,  viz.,  services 
and  commodities,  or,  labor  and  the  products  of  past  labor.     To 
carry  forward  this  distinction  is  not  consistent  with  the  sim- 
plicity of  the  science  which  these  writers  have  in  contempla- 
tion.     The  difficulty  is  soon  resolved.      They  discover  that 
commodities  are,  after  all,  nothing  but  services  which  have 
taken  on  a  material  form,  and  thereafter  they  speak  only  of 
services,  and  thereby  secure  to  political  economy  "  one  grand 
characteristic  of  the  great  sciences,  viz.,  simplicity."      This 
effected,  the   distinction   between  the   Distribution  and  the 
Exchange  of  wealth  falls  to  the  ground.     There  is  no  longer 
any  need  for  the  former  term  in  political  economy. 


190 


POLITICAL  ECONOMY. 


But  I  venture  to  assert  that  this  forced  simplicity,  secured 
by  compelling  into  a  single  form  things  having  much  that  is 
not  in  common  ;  this  false  peace,  which  disregards  irrecon- 
cilable differences  ;  this  hasty  generalization,  by  which  services 
and  commodities  are  made  to  be  one  and  the  same  thing,  has 
had  the  effect  to  render  political  economy  signally  barren 
through  the  very  period  when  social  philosophy  has  been 
most  prolific,  and,  secondly,  to  forfeit  nearly  all  popular 
respect  for,  and  interest  in,  the  so-called  science  of  ex- 
changes. 

248.  "During  the  present  century,"  says  the  Duke  of 
Argyle,  in  his  Reign  of  Law,  "  two  great  discoveries  have 
been  made  in  the  science  of  government :  the  one  is  the 
immense  advantage  of  abolishing  restrictions  upon  trade  ; 
the  other  is  the  absolute  necessity  of  imposing  restrictions 
upon  labor." 

I  do  not  quote  this  passage,  here,  for  the  sake  of  raising 
the  question  of  Ten-Hour  laws  or  factory  inspection  (pars. 
471-3),  but  only  to  call  attention  to  the  clear,  strong  anti- 
thesis in  which  it  places  services  and  commodities.  That 
statement  does  not  exaggerate  the  general  and  still  growing 
consent  of  social  philosophers  and  legislators  that  the  render- 
ing of  services  differs  so  widely  from  the  exchange  of 
commodities  that  the  two  must  stand  in  different  relations 
to  legislation.  More  and  more  fully  has  this  distinction 
come  to  be  recognized.  If  political  economy  denies  the 
validity  of  the  distinction,  so  much  the  worse  for  political 
economy,  in  the  eyes  of  social  philosophers  and  statesmen 
alike.  Surely,  the  simplicity  of  the  science  may  be  secured  at 
too  high  a  cost ! 

Equally  against  the  pressure  of  enormous  vested  interests, 
and  against  the  protests  of  professional  political  economists, 
the  legislation  of  almost  every  enlightened  country  has  pro- 
gressed by  steady  steps,  through  the  last  sixty,  forty,  and 
especially  during  the  last  twenty  years,  in  the  direction  of  dis- 
criminating vitally  between  commodities  and  services,  allow- 
ing continually  greater  and  greater  freedom  of  contract  in 
respect  to  the  former,  and  bringing  the  contracts  which 


SERVICES    VS.    COMMODITIES.  191 

involve   the   latter   more   and    more   completely   under   the 
authority  and  supervision  of  the  State. 

And  yet  there  is  complaint  that  statesmen  and  the  mass  of 
the  people  entertain  such  slight  regard  for  political  economy, 
whose  professors,  in  the  interest  of  the  purity  and  simplicity 
of  their  science,  discard  from  the  premises  of  their  reasoning 
(par.  21)  all  the  "sympathies,  apathies,  and  antipathies"  of 
mankind,  and  insist  upon  treating  a  Manchester  spinner,  with 
a  wife  and  six  children,  ignorant,  fearful,  and  poor,  as 
possessing  the  same  mobility  economically,  and  under  the 
same  subjection  to  the  impulses  of  pecuniary  interest,  as  a 
bale  of  Manchester  cottons  on  the  wharf,  free  to  go  to  India 
or  to  Iceland,  as  the  difference  of  a  penny  in  the  price  may 
determine  ! 

249.  An  Analogous  Case. — But  we  shall  not  get  a  full  meas- 
ure of  the  insufficiency  of  the  reasons  given  for  dropping  the 
distinction  between  commodities   and  services,  in  exchange, 
unless  we  ask  what  would  be  the  consequences  to   political 
economy  of  dealing  in  the  same  spirit  with  the  analogous  case 
of  the  distinction  between  labor  and  capital,  in  production. 
Suppose  the  political  economist  were  to  say  :    Capital  is  but 
the  result  of  the  labor  of  the  past ;  it  is,  in  essence,  labor 
which  has  taken   on  a  material  and  more  or  less  permanent 
form  ;  whatever  is  true  of  labor  must   be   true    of  capital  ; 
we  will,  therefore,  resolve  the  two  into  one,  and  thus  pro- 
mote the  simplicity  of  political  economy.    Simplicity,  indeed  ! 
but  at  the  cost  of  the  loss  of  all  significance,  if  not  all  sense. 
What  sort  of  a  political  economy  would  that  be  which  did 
not  recognize  the  distinction  between  labor   and  capital    in 
production?     Yet    the    distinction   has    a    singularly    close 
analogy   to   that   between   services   and   commodities  in  ex- 
change. 

250.  A  Contest,  though  not  a  Destructive  Contest. — It 
will  be  noted  that  the  distribution  of  the  product  of  industry 
involves  what  may  be  termed  a  perpetual  contest  between  the 
parties  to  production.     This  contest  is  not  a  destructive  one, 
since  the  interest  of  each    of    the    participants  requires  the 
existence,  and,   by  consequence,  the  sustentation,  of  all  the 


192 


POLITICAL  ECONOMY. 


others.     Yet,  within  the  limits  consistent  with  this,  there  is 
opposition  of  interests. 

251.  The  Parties  to  the  Distribution  of  Wealth. — The 
contest  is,  in  the  last  analysis,  between  individuals.    We  shall 
see  that  the  real  or  supposed  common  interests  of  a  number 
of  producers  may  create  a  supposed  class  interest  which  will 
lead  them  to  act  in  concert,  with  a  subordination  of  individual 
preferences  to  the  general  good  ;  but,  as  a  rule,  the  efforts  of 
individuals  are  directed   to    a    personal   benefit.     Inasmuch, 
however,  as  it  would  be  impossible  to  work  out  the  problem 
of  distribution  with  reference  to  each  man,  woman,  and  child, 
we  may  aggregate  individuals,  according  to  what  they  have 
in  common,  into  classes,  larger  or  smaller,  and  may  seek  for 
the  general  law  which  governs  the  efforts  of  the  members  of 
each  class  towards  the  acquisition  of  wealth. 

252.  Classes  in  Distribution.— Even  if  we  disregard  petty 
distinctions  and  inconsiderable  exceptions,  the  prime  classes 
appearing  in  distribution  will  vary  in  different  countries.     A 
classification  which  would  fully  meet  the  facts  of  industrial 
organization  in  India,  would  omit  distinctions  of  prime  import- 
ance in  England. 

Inasmuch  as  we  could  not,  in  an  elementary  treatise,  give 
the  space  needed  to  set  forth  the  problem  of  distribution  in 
each  country  or  group  of  countries  having  a  common  indus- 
trial organization,  we  will  consider  for  our  present  purpose  thff 
industrial  organization  of  England.  We  take  this,  because  ift 
is  the  most  highly  developed  organization  known  to  industry  ; 
because  it  is  largely  reproduced  in  the  United  States  and  on 
the  continent  of  Europe,  and  in  Canada  and  Australia,  and  is 
everywhere,  among  progressive  peoples,  more  and  more 
widely  extending  from  year  to  year.  Moreover,  it  will  be 
easier  for  the  reader  to  work  out  for  himself  the  problem  of 
distribution  in  countries  of  a  lower  organization,  than  it  would 
be  to  go  from  the  simpler  to  the  more  complex  forms  of 
industrial  life. 

Under  the  system  which  we  have  taken  for  the  pui'poses 
of  the  present  discussion,  we  have  four  classes  of  claimants 
upon  the  product  of  industry,  and  that  product  is  accordingly 


CLASSES  IN  DISTRIBUTION.  193 

divided  into  four  grand  shares.  These  classes  and  the 
shares  respectively  received  by  them  may  be  expressed  as 
follows  : 

1.  The  landlord,  receiving  rent. 

2.  The  capitalist,  receiving  interest. 

3.  The  employer,  or  entrepreneur,  receiving  profits. 

4.  The  employed  laborer,  receiving  wages. 

The  reason  for  naming  these  several  claimants  in  the  order 
just  given,  will  appear  as  we  make  progress  in  the  discussion 
of  the  forces  which  effect  the  distribution  of  wealth. 


CHAPTER  H. 

BENT. 

253.  Definition  of  Bent. — Rent  is  the  term  applied  to  the 
remuneration  received  by  the  land-owning  class  for  the  use  of 
the  native  and  indestructible  powers  of  the  soil,  or,  as  it  might 
be  expressed,  for  the  use  of  natural  agents. 

That  remuneration  may  be  paid  in  money  or  in  produce. 
The  term  land,  or  natural  agents,  must  be  understood  to  in- 
clude not  only  arable  land,  but  pasture,  timber  lands,  min- 
eral deposits,  water  privileges  and  building  sites.  For  the 
present  discussion,  however,  it  will  be  best  to  take  our 
illustrations  from  the  occupancy  and  cultivation  of  arable 
land. 

254.  The  Origin  of  Rent  Illustrated.— Let    us   suppose   a 
community,  isolated  from  all  others,  to  occupy  a  circular  tract 
of  land  divided,  as  in  the  following  diagram,  into  four  sectors 
equal  in  extent  but  so  differing  in  fertility  that  one  piece  will, 
whh  so   many  days'   labor    in   the  year  given   to  plowing, 
cultivating   and   harvesting,  yield  24  bushels  of   wheat  per 
acre,  while  the  second  will  yield,  with  the  same  amount  of 
labor,  but  22  bushels,  the  third  but  20  bushels,  and  the  fourth 
but  18.     Now  the  assumption  we  have  made  as  to  differing 
degrees  of  fertility  in  the  soil  of  the  several  tracts,  is  not  an 
extravagant  one.     On  the  contrary,  we  might  reasonably  have 


194  POLITICAL  ECONOMY. 

assumed   the  degrees  of  fertility  to  differ  far  more  widely. 
"  A  quarter  of  wheat,"  says  Mr.  McCulloch,  "  may  be  raised 


in  Kent,  or  Essex,  or  in  the  Carse  of  Gowrie,  for  a  fourth  or 
fifth  part,  perhaps,  of  the  expense  necessary  to  raise  it  on  the 
worst  soils  under  cultivation  in  the  least  fertile  parts  of  the 
kingdom." 

In  order  to  further  simplify  the  problem,  we  will  suppose 
that  all  the  inhabitants  of  this  community  reside  in  a  village 
at  the  center. 

255.  The  Ante-Rent  Stage  of  Cultivation.— Let  the  first 
case  taken  be  when  the  village  is  yet  so  small  that  all  the 
wheat  required  for  the  subsistence  of  the  population  can  be 
raised  upon  a  portion  only  of  what  we  will  call  the  24-bushel 
tract.  If  the  tract  be  held  by  a  number  of  competing 
owners,*  each  acting  for  himself,  seeking  his  individual  in- 

*  If  the  tract  were  held  by  one  person,  or  by  several  persons  acting  in 
concert,  a  monopoly  would  be  established,  and  a  rent  might  be  exacted. 
What  would  be  the  limit  of  that  rent  ?  Two  bushels  an  acre,  inasmuch 
as  one  would  do  better  for  himself  to  take  up  for  cultivation  a  portion 
of  the  22-bushel  tract,  paying  no  rent,  than  give  more  than  two  bushels 
for  the  use  of  an  acre  of  the  more  productive  land. 

But  this  rent  of  two  bushels  per  acre,  would  not  be  paid  for  the  whole 
of  the  first  tract,  but  only  for  the  number  of  acres  actually  required  for 
cultivation  in  order  to  furnish  subsistence  for  the  community.  All  the 
owners  in  the  combination  would  have  to  divide  among  themselves  the 
aggregate  sum  so  obtained,  none  obtaining  so  much  as  two  bushels  an 


KENT  EMERGES.  195 

terest,  no  rent  will  be  paid,  or  only  a  rent  so  small  that  for 
purposes  of  economic  reasoning  we  may  disregard  it.  Each 
owner  of  land  in  this  tract  will  be  desirous  of  securing  for 
himself  whatever  compensation,  if  any,  is  to  be  paid  for  the 
use  of  land.  But  as  the  entire  tract  is  not  required  for  cul- 
tivation, and,  as,  consequently,  only  a  part  of  the  owners 
can  receive  any  compensation  for  their  land,  an  active  com- 
petition will  set  in,  each  man  offering  the  use  of  his  land  for 
less  and  less,  in  order  to  get  something,  until  rent  falls  to  a 
minimum,  or  disappears  altogether. 

256.  Relation  of  Waste  to  Rent. — And  it  is  here  we  see 
the  significance  of  the  word,  "  indestructible,"  in  par.  253.   All 
scientific  reasoning  about  rent  is  based  on  the  assumption  that 
the  tenant  will  leave  the  soil  in  as  good  condition  as  it  was  in 
when  he  took  it.     Now,  it  is  possible  for  a  tenant  to  impair 
the  fertility  of  land,  first,  byintentional  abuse,  or,  secondly,  by 
taking  away  its  productive  essences,  in  the  crops  of  successive 
years,  without  returning  any  thing  to  it  in  the  shape  of  manures 
or  other  fertilizers. 

It  is  only  upon  the  above  assumption  that  it  would  be  true 
that  each  owner  of  land  in  the  twenty-four  bushel  tract  would 
prefer  to  lease  it  for  a  very  small  rent,  approaching  nothing, 
rather  than  not  lease  it  at  all.  Unless  he  could  be  protected^ 
by  law  or  contract,  against  exhaustion  of  the  soil,  he  might 
prefer  to  let  his  land  go  unoccupied.  But  on  the  assumption 
stated,  the  proposition  is  true  that,  in  the  situation  described, 
no  portion  of  the  twenty-four  bushel  tract  would  bring  so 
large  a  rent  that  it  might  not,  for  purposes  of  economic 
reasoning,  be  treated  as  nil. 

257.  Rent  Emerges. — Let  us  now  advance  to  the  second 
stage.     We  will  suppose  that  the  population  of  the  village 
has  increased  to  such  an  extent  that  the  whole  of  the  twenty- 
four  bushel  tract  will  no  longer  raise,  when  cultivated  as  it 
has  heretofore  been,  all  the  wheat  required  for  the  subsistence 

acre  for  his  individual  estate.  Should  any  one  owner  try  to  overreach 
the  others  and  secure  the  full  rent  for  the  whole  of  his  own  land,  the 
"ring  "  would  be  broken,  competition  would  set  in,  and  rents  would  fall 
to  the  minimum. 


196  POLITICAL  ECONOMY. 

of  the  community.  Cultivation  will  then  be  driven  down  to 
an  inferior  grade  of  soils.  A  part  of  the  second  tract,  the 
twenty-two  bushel  tract,  will  be  taken  up. 

Do  you  ask,  why  not  increase  the  amount  of  labor  upon  the 
twenty-four  bushel  tract,  and  so  raise  more  wheat  to  the  acre  ? 
I  answer,  because  of  the  great  fact  of  Diminishing  Returns  in 
Agriculture,  which  was  set  forth  in  Part  II.,  with  so  much 
particularity.  We  shall  now  see  the  whole  theory  of  rent 
built  upon  it.  The  fact  itself  is  undeniable.  In  every  coun- 
try of  the  world,  and  in  every  parish  or  township  of  every 
country,  cultivation  is  seen  descending  to  grades  of  soils  be- 
low the  best,  because  the  yield  from  the  highest  grades  can  not 
be  increased  proportionally  to  an  increase  of  labor  expended 
thereon. 

Cultivation  having,  in  the  case  of  the  community  whose  in- 
dustrial history  we  have  traced  so  far,  been  driven  down  to 
the  twenty-two  bushel  tract,  rent  will  at  once  emerge.  Not 
that  rent  will  be  paid  for  any  portion  of  the  latter  tract, 
which  will  all  be  in  the  same  condition,  as  regards  compensa- 
tion for  its  use,  as  was  the  first  tract,  when  that  alone  was 
cultivated  ;  but  for  the  twenty-four  bushel  tract,  and  for  each 
portion  of  it,  rent  will  now  be  paid.  Why  ?  Because  any 
person  desiring  to  raise  wheat  may  better,  may  he  not?  pay 
something  for  cultivating  a  portion  of  that  tract,  than  cultu 
vate  a  portion  of  the  new  lands  for  nothing. 

How  much  will  he  pay  ?  Exactly  the  difference  between 
the  crops  to  be  grown  on  the  two  soils,  with  the  same  applica- 
tion of  labor,  i.  e.,  two  bushels,  since  he  can  afford  to  pay  this 
rent  rather  than  move  to  the  less  productive  soil.  As  some 
must  so  move,  the  landlord  will  be  able  to  exact  the  maximum 
rent  from  the  present  cultivator  :  if  not,  from  some  other. 

Let  us  now  advance  another  stage,  and  suppose  the  increase 
of  population  to  require  the  cultivation  of  the  twenty -bushel 
tract.  The  effect  of  this  downward  movement  of  the  limit  of 
•cultivation  will  be  two-fold  : 

First,  the  twenty-two  bushel  tract  will  begin  to  bear  a  rent, 
since  any  cultivator  can  better  afford  to  pay  a  certain  rent  for 
the  privilege  than  occup/  a  portion  of  the  new  land  for 


THE   LA  IV   OF  RENT.  197 

nothing.  The  amount  of  that  rent  will  be  determined  by  the 
difference  in  productiveness  between  the  two  tracts,  being,  in 
the  case  supposed,  two  bushels,  an  acre. 

Secondly,  the  tract  first  cultivated  now  brings  its  owner  a 
rent  (24 — 20=4),  not  of  two  bushels,  but  of  four.  It  is  no 
better  land  than  it  was  before  ;  it  produces  no  more  wheat 
under  the  same  application  of  labor  and  capital ;  yet  it  yields 
its  owner  a  rent  twice  as  great  as  before  cultivation  descended 
to  the  third  grade  of  soils.  That  increase  of  rent  takes  place 
simply  and  solely  because  cultivation  has  so  descended. 

If,  again,  we  suppose  that  the  increasing  needs  of  the 
community  require  the  cultivation  of  the  eighteen-bushel 
tract,  even  the  twenty-bushel  tract  will  begin  to  bear  a  rent, 
viz.,  two  bushels,  while  the  rent  of  the  next  tract  will  rise  to 
four  bushels,  and  that  of  the  most  productive  land  to  six 
bushels,  or  three  times  the  original  amount. 

258.  The  Law  of  Rent. — If  we  have  correctly  traced  the 
course  of  self-interest,  in  dealing  with  the  occupation  of  land", 
under  the  necessity  of  a  resort  to  inferior  soils,  we  are  pre- 
pared to  state  the  law  of  rent. 

1.  Rent  arises  out  of  differences  existing  in  the  productive- 
ness of  different  soils  under  cultivation  at  the  same  time,  for 
supplying  the  same  market. 

2.  The  amount  of  rent  is  determined  by  the  degree  of  those 
differences.     Specifically,  the  rent  of  any  piece  of  land  is 
determined  by  the  difference  between  its  annual  yield  and 
that  of  the  least  productive  land  actually  cultivated  for  the 
supply  of  the  same  market,  under  equal  applications  of  labor 
and  capital,  it  being  assumed  that  the  quality  of  the  land  as  a 
productive  agent  is,  in  neither  case,  impaired  or  improved  by 
such  cultivation. 

259.  Cost  of  Transportation. — By  productiveness  through- 
out the  foregoing  discussion,  has  been  intended  net  produc- 
tiveness, the   cost   of   transportation   to  market  being   first 
deducted. 

In  the  illustration  as  thus  far  given,  the  cost  of  transporta- 
tion has  been  left  out  of  account.  Let  us  now,  however, 
suppose  a  tract  to  be  brought  under  cultivation  for  the  pur- 


198  POLITICAL   ECONOMY. 

pose  of  supplying  this  market,  situated  at  so  great  a  distance 
as  to  make  the  cost  of  transportation  a  considerable  element 
in  the  problem  of  rent. 

If  the  reader  will  recur  to  the  diagram,  he  will  see  that  we 
have  marked  out  a  tract,  at  some  distance  from  our  village, 
the  path  thereto  bearing  the  legend  —2,  by  which  we  have 
intended  to  signify  that  the  cattle  and  men  taking  the  grain 
to  market  will  eat,  going  and  returning,  two  bushels  out  of 
the  produce  of  each  acre.  The  net  productiveness  of  the  tract 
will  then  be,  for  the  purpose  of  determining  its  rental,  not  23 
bushels,  but  21.  It  will  not  be  cultivated  until  after  the  first 
two  tracts  have  been  completely  occupied.  It  will  then  be 
cultivated,  but  will  bear  no  rent  so  long  as  its  produce,  com- 
bined with  that  of  those  two  tracts,  suffices  for  the  sustenta- 
tion  of  the  community.  But  when  the  increasing  needs  of 
population  drive  cultivation  down  to  the  20-bushel  tract,  the 
tract  in  question  will  bear  a  rent  of  one  bushel,  which  will 
rise  to  three  when  cultivation  seeks  the  18-bushel  tract. 

260.  A  New  Continent.— The  reader  will  further  note  that 
we  have  connected  the  same  community  with  the  projecting 
edge  of  a  continent,  which  we  have  named  America,  by  a 
dotted  line,  to  which  we  have  attached  the  sign  and  figure  — 8. 
These  represent  that  portion  of  the  crop  of  the  year  which  is 
given  to  railway  companies  and  the  owners  of  vessels,  as  a 
consideration  for  transporting  the  grain  to  the  English  market. 
The  net  produce  of  these  lands  is,  then,  20  bushels.  Though 
they  actually  yield  28  bushels  to  the  acre,  with  the  given 
application  of  labor,  they  will  bear  no  rent  till  the  18-bushel 
tract  of  English  land  is  brought  under  cultivation,  when  they 
will  yield  two  bushels  rent,  an  acre,  the  same  as  the  20-bushel 
English  tract,  the  net  productiveness  being  the  same. 

But  suppose  this  American  land  is  of  vast  extent,  and  upon 
it  can  be  raised  all  the  grain  which  this,  or  any,  market 
requires,  what  will  be  the  effect  upon  rents  ?  Why  this  :  no 
one  will  now  cultivate  the  English  18-bushel  tract.  Why 
should  one,  since  a  greater  net  produce  can  be  obtained  by  the 
same  labor  elsewhere  ?  This  lowest  grade  of  soils,  therefore, 
falls  out  of  cultivation.  With  what  effect  upon  the  rent  of 


KENT  AND    TRANSPORTATION.  199 

other  parcels  of  land  ?  To  answer  this,  let  us  recur  to  our 
formula.  The  rent  of  any  piece  of  land  is  determined  by  the 
difference  between  its  annual  yield  and  that  of  the  least 
productive  land  under  cultivation  for  the  purpose  of  supplying 
the  same  market.  The  24-bushel  English  tract  has  been 
bringing  its  owner  6  bushels,  an  acre,  rent,  because,  and  only 
because,  the  18-bushel  tract  was  necessarily  brought  under 
cultivation.  Now,  however,  that  American  land,  with  a  net 
productiveness  of  20  bushels,  an  acre  (28 — 8=20)  is  found  in 
unlimited  amount,  the  margin  of  cultivation  is  pushed  back- 
wards, and  the  best  of  the  English  tracts  brings  but  four 
bushels  rent ;  the  next  best  but  two  ;  the  20-bushel  tract 
now  bears  no  rent,  as  it  is  in  competition  with  free  American 
land  of  indefinite  extent. 

Again,  assume  that  the  introduction  of  Bessemer  steel  rails 
and  various  improvements  in  ocean  navigation  reduce  the  cost 
of  transportation  of  American  grain  to  seven  bushels  out  of 
every  28,  what  will  be  the  effect  on  English  rents  ?  Clearly 
the  American  land  now  has  a  net  productiveness  represented 
by  21  bushels,  and,  as  it  is  of  unlimited  extent,  all  the  English 
20-bushel  land  is  thrown  out  of  cultivation — for  who  would 
wish  to  cultivate  it  ?  and  the  rent  of  the  best  English  land  is 
reduced  to  three  bushels,  and  that  of  the  second  grade  to  one. 

The  foregoing  illustration  accounts  sufficiently  for  the  great 
economic,  and,  by  consequence,  great  social  change,  which  has 
been  going  on  in  the  British  Islands  within  the  last  few  years. 
The  reduction  in  the  cost  of  transportation  from  the  American 
wheat  fields  beyond  the  Mississippi  to  the  seaboard,  and  from 
the  seaboard  to  Liverpool,  has  increased  the  net  productiveness 
of  those  fields  to  a  degree  equal  to  the  addition  of  several 
bushels  an  acre  to  the  crop.  This  has  thrown  out  of  cultiva- 
tion much  of  the  poorer  English  land,  and,  by  lifting  upward 
the  limit  of  cultivation,  has  decreased  the  normal  rent  of  all 
English  lands,  cutting  deeply,  in  prospect,  into  the  incomes  of 
the  land-owning  class.  The  first  effects,  however,  have  been 
most  severely  felt  by  the  cultivators  of  the  soil,  who,  holding 
their  farms  by  lease,  find  themselves  still  bound  to  pay  the 
stipulated  rents. 


2oo  POLITICAL  ECONOMY. 

261.  Relation  of  Rent  to  the  Price  of  Land.  — We  have 
stated  the  economic  doctrine  of  rent.     The  price  of  land  and 
its  rental  value  stand  in  a  certain  necessary  relation  to  each 
other.     Land  has  its  price  because,  and  only  because,  it  can 
command  a  rent.     But  while  the  relation  between  the  two  is 
a  necessary  one,  being  no  less  direct  than  that  of  cause  and 
effect,  the  ratio  between  the  rent  of  land  and  the  price  of  land, 
expressed  in  terms  of  produce  or  of  money,  varies  widely.     In 
some  countries,  where  the  amount  of  accumulated  capital  is 
large  ;  where  a  high  degree  of  civil  security  exists  ;  where 
the  rights  of  property  are  respected,  and  where  the  ownership 
of  land  carries  with  it  social  distinction  and  perhaps  political 
influence,  the  price  of  land  may  be  twenty,  twenty-five  or  even 
thirty  times  the  annual  rental.      In  other  countries,  from  the 
failure  of  one  or  all  of  the  conditions  indicated,  land  may  not 
sell  for  more  than  fifteen  or  even  ten  times  its  rental. 

262.  Rent  forms  no  part  of   the  Price  of  Agricultural 
Produce. — From  the  law  of  rent,  as  it  has  been  stated,  we 
deduce  the  very  important  conclusion  that  rent  forms  no  part 
of  the  price  of  agricultural  produce. 

No  proposition  which  the  political  economist  has  occasion 
to  announce  is  so  startling,  at  the  first  hearing,  as  this  ;  nor 
does  any  other  contend  against  such  persistent  inci'edulity. 
And  yet,  no  proposition  can  be  more  clearly  established.  We 
have  seen  (par.  132)  that  in  the  same  market,  at  the  same 
time,  there  is  but  one  price  for  different  equal  portions  of  any 
commodity.  We  have  also  seen  (par.  137)  that  normal  price 
is  fixed  by  the  cost  of  producing  that  portion  of  the  supply 
which  is  produced  at  the  greatest  disadvantage. 

Apply  these  principles  to  the  case  in  hand.  England  does  not 
raise  all  the  wheat  needed  for  the  subsistence  of  her  population. 
Besides  cultivating  the  most  fertile  of  her  own  fields,  she 
makes  heavy  draughts  upon  the  United  States,  France,  Egypt, 
Hungary,  and  the  Black  Sea  region.  For  the  wheat  of  all 
these  countries,  however,  so  far  as  it  is  of  the  same  quality, 
there  is  but  one  price.  That  price  is  fixed  by  the  cost  of  raising 
the  million,  say,  of  bushels  which  are  raised  at  the  greatest 
disadvantage,  which  means,  in  this  case,  at  the  greatest  dis- 


RENT  AND    THE  PRICE  OF  BREAD.  2OI 

tance,  viz.,  on  the  plains  of  Dakota.  This  wheat  the  English 
must  have  :  the  proof  of  which  is  found  in  the  fact  that  they 
do  have  it.  Now,  if  they  will  have  it,  they  must  pay  the 
cost  of  raising  it,  that  is,  must  pay  enough  to  induce  men  to 
go  to  that  far-off  country,  undergo  the  privations  of  a  frontier 
life,  undertake  all  the  risks  of  pioneer  agriculture,  and  submit 
to  enormous  charges  for  the  transportation  of  their  product  by 
land  two  thousand  miles  to  the  seaboard,  and,  then,  three  thou- 
sand miles,  by  sea.  If  the  English  will  not  pay  this  price,  they 
can  not  have  the  wheat.  That  they  get  the  wheat  is  proof  that 
they  pay  this  price,  which,  in  turn,  sets  the  price  for  all  the 
wheat  raised  in  England,  and  for  all  the  wheat  brought 
thither,  whether  from  France,  from  Egypt  or  from  the  Black 
Sea.  Wheat  may  be  raised  in  Middlesex  at  an  actual 
cost  not  exceeding  two  shillings  a  bushel ;  but  the  Middlesex 
farmer  will  not,  on  that  account,  sell  his  wheat"  below  the  mar- 
ket price,  say  six  shillings,  which  price  is  fixed,  as  we  have 
seen,  by  the  wheat  from  America.  The  difference,  four 
shillings,  is  to  be  profit  for  somebody  ;  and  we  will  now  pro- 
ceed to  show  that  this  body  must  be  either  the  landlord,  or 
the  tenant,  not  the  agricultural  laborer,  and  riot  the  consumer 
of  flour. 

263.  What  Would  Happen  if  Rents  Were  Remitted?— 
We  shall  best  make  this  appear  by  means  of  an  illustration. 
Let  us  suppose  that  a  philanthropic  gentleman,  whose  rent  roll 
is  £20,000,  being  greatly  moved  by  tales  of  distress,  knowing 
that  the  quartern  loaf  is  very  dear,  and  believing  this  to  be 
due  to  the  large  rents  paid  for  the  use  of  land,  calls  his 
tenants  together,  and  tells  them  that,  in  consideration  of  the 
hard  times  and  the  great  suffering  of  the  poor,  he  has  de- 
termined to  remit  one-half  of  the  rent  of  all  his  farms.  What 
would  be  the  consequence  ?  Doubtless  all  the  tenants  would 
accept  the  proffered  terms  cheerfully,  and  humbly  thank  his 
honor.  But  would  they  sell  the  wheat  at  any  lower  price  ? 
Not  at  all  ;  why  should  they  ?  They  can  get  the  market 
price  for  it.  That  price  is  not  fixed  by  the  cost  of  raising 
wheat  on  their  farms,  or  any  farms  for  which  rent  is  paid. 
It  is  the  no-rent  land  that  raises  that  last  portion  of  the 


202  POLITICAL  ECONOMY. 

necessary  supply  of  wheat  which  fixes  the  price  of  all 
wheat. 

But  suppose,  to  imagine  a  most  improbable  case,  that  some 
one  out  of  the  fifty  tenants  on  this  estate  were  to  go  to  the 
dealer  in  grain  to  whom  he  was  accustomed  to  sell  his  crop, 
and  say  :  "  Mr.  B.,  inasmuch  as  my  landlord  has  remitted  half 
my  rent  this  year,  I  offer  you  my  wheat  a  shilling  less  a 
bushel,  in  order  that  you  may  sell  it  at  a  corresponding  re- 
duction to  the  baker."  What  would  the  grain-dealer  do? 
Clearly  he  would  take  the  wheat,  at  the  reduced  price  offered; 
but  would  he  sell  it  to  the  baker  for  any  less  ?  Or,  if  he  did, 
would  the  baker,  getting  his  flour  a  shilling  "  off,"  put  down 
the  price  of  the  loaf  ?  Not  if  he  were  of  the  sort  of  baker  that 
you  and  I  know. 

But  perhaps  it  is  said,  we  concede  that  the  farmers  will  not 
sell  their  wheat  at  any  lower  price,  on  account  of  the  remis- 
sion of  rent,  but  they  will  raise  the  wages  of  their  laborers. 
Why  should  they  ?  They  can  make  presents  to  their  laborers, 
just  as  they  could  make  presents  to  grain  dealers  or  bakers, 
but  we  are  talking  now  about  business,  and,  as  a  matter  of 
business,  why  should  these  fifty  persons  raise  the  wages  of 
their  laborers,  in  consequence  of  the  generosity  of  their  own 
landlord  ?  The  laborers  were  willing  to  work,  before,  for  the 
wages  that  were  stipulated,  the  same  wages,  it  may  be 
assumed,  which  other  laborers  in  the  county  were  receiving. 
Why  should  the  laborers  now  be  unwilling  to  work  at  the 
same  wages  ?  And  if  the  laborers  are  willing  to  work  at  the 
same  wages,  why  should  the  farmers  pay  more  ? 

264.  Resume  of  the  Subject These  illustrations  may 

seem  very  elementary,  but  I  have  known  so  many  persons, 
after  a  complete  demonstration  of  the  proposition  we  are  con- 
sidering, go  away,  showing,  by  look  or  by  remark,  that  they 
still  clung  to  the  notion  that  rent  has,  somehow,  something  to 
do  with  the  price  of  agricultural  produce,  that  I  hav*  thought 
it  worth  the  space  required  to  repeat  the  demonstration  and 
fully  illustrate  the  argument.  I  trust  it  has  been  shown,  to 
the  conviction  of  every  reader,  that  rent  is  a  matter 
between  the  landowner  and  the  tenant,  not  between  the  land- 


THE    THEORY,   HOW  FAR    TRUE?  203 

lord  and  the  agricultural  laborer,  or  between  the  landlord  and 
the  consumer  of  agricultural  produce. 

Rent  is  the  surplus  of  the  crop  above  the  cost  of  cultivation 
on  the  least  productive  lands  contributing  to  the  supply  of  the 
market.  Admitting  the  private  ownership  of  land  (pars. 
493-505),  that  surplus,  necessarily,  so  far  as  economic  forces  are 
concerned,  is  left  in  the  hands  of  the  landlord.  There,  so  far 
as  economic  forces  are  concerned,  it  must  remain.  The  land- 
lord can  give  it  away,  if  he  pleases,  just  as  he  can  give  away 
his  horse,  or  his  house,  or  any  thing  that  is  his.  He  can  give 
it  to  his  tenant,  just  as  he  could  give  to  any  one  else.  But 
if  he  does,  it  becomes  a  pure  gratuity  to  the  tenant,  who, 
under  the  operation  of  the  principle  of  self-interest,  will  trans- 
mit it  neither  to  the  agricultural  laborer  nor  to  the  consumer 
of  food,  but  will  retain  it  entire  for  his  own  enrichment. 

265.  Attacks  on  the  Doctrine  of  Rent.  —  Such   is    the 
economic  doctrine  of  wealth,  which  is  generally  known  by  the 
name  of  David  Ricardo,  though,  in  truth,  it  was  announced 
"by  Anderson,  a  Scotch  economist,  who  wrote  at  an  earlier 
-date.* 

I  postpone  to  Part  VI.  the  consideration  of  attacks  upon 
the  doctrine  of  Rent,  by  certain  American  and  French 
writers. 

266.  The  Doctrine  of  Bent:    How  Far  Applicable  to 
Actual  Conditions? — The     law    of    rent   which    has    been 
expounded,  is  true  only  hypothetically,  that  is,  upon  the  condi- 
tion assumed,  viz.,  that  the  owners  and  the  occupiers  of  land, 
each  for  himself,  fully  understand  their  own  pecuniary  inter- 
ests, and  will  unflinchin-gly  seek  and  unfailingly  find  their 
best  market. 

How  much  does  this  mean  ?  A  great  deal  ;  more  than  ever 
was  realized  in  any  country,  at  any  time,  though  it  has  been 

*It  is  not,  however,  wholly  inappropriate  to  join  the  name  of  Ricardo 
to  this  doctrine,  on  account  of  the  great  force  and  clearness  with  which 
he  expounded  and  defended  it.  Anderson's  statement  of  the  same  prin- 
ciple, though  perfectly  correct,  was  so  made  as  to  attract  no  attention,  and 
it  was  not  till  long  after  Ricardo  made  the  doctrine  famous,  that  it 
Ijecame  popularly  known  that  the  substance  of  it  was  contained  in 
Anderson's  work. 


204  POLITICAL  ECONOMY. 

far  more  nearly  approached  in  some  than  in  others.  Just 
what  is  implied  in  the  above  assumption  ? 

On  the  landlord's  part  that  (1)  he  would  as  soon  take  a  new 
tenant  as  retain  one  whose  family  had  been  on  the  soil  for 
centuries ;  that  (2)  he  will  entertain  no  other  consideration 
than  the  realization  of  the  largest  possible  rent ;  that  (3)  he 
knows  all  the  facts  which  in  any  way  bear  upon  the  highest 
rate  that  could  be  charged  for  the  use  of  the  land  without 
driving  away  all  would-be  tenants. 

On  the  tenant's  part,  that  (l)  he  has  the  means  to  place 
himself  elsewhere  ;  that  (2)  he  could  carry  with  him  the  value 
of  his  stock  and  fixtures,  and  of  any  improvements  made  dur- 
ing his  tenancy  ;  that  (3)  he  knows  and  can  intelligently  can- 
vass the  varying  advantages  of  a  sufficient  number  of  locali- 
ties to  make  his  choice  practically  indefinite  ;  and  that  (4) 
neither  indolence,  nor  inertia,  nor  dread  of  change,  nor  love 
of  home,  friends  or  country,  will  intervene  to  keep  him  from 
his  best  market  :  that  is,  where  he  can  rent  land,  of  a  given 
degree  of  productiveness,  at  the  lowest  annual  rate. 

The  recital  of  the  foregoing  conditions  shows  that  Rlcardo's 
law  does  not  furnish  a  formula  by  which  the  rent  of  a 
single  piece  of  land  can  be  determined  in  advance.  The 
doctrine  is  true  only  hypothetically,  and  the  conditions 
assumed  exist  nowhere. 

267.  Yet  this  hypothetical  doctrine  of  rent  is  by  no  means 
to  be  regarded  as  vain  and  illusory.  It  is,  on  the  contrary,  of 
vast  importance.  It  must  be  fundamental  in  any  correct 
theory  of  the  distribution  of  wealth.  No  projectile  ever 
describes  a  perfect  parabola,  since  the  resistance  of  the  air 
and  the  force  of  the  wind  will  interfere  to  prevent  an  abso- 
lute compliance  with  the  law  of  the  projectile.  Yet  the  artil- 
lerist must  always  have  reference  to  that  law  in  pointing  his 
piece,  making  such  allowance  for  disturbing  influences  as 
existing  conditions  may  seem  to  require.  Any  attempt  to 
explain  the  partition  of  the  product  of  industry  which  should 
leave  Economic  Rent  out  of  account,  would  be  either  futile 
or  deceptive. 

In  some  countries,  notably  in  the  United  States  and    in 


AMERICAN   RENTS.  205 

England,  Ricardo's  law  furnishes  the  great  underlying  prin- 
ciple according  to  which,  with  more  or  less  of  divergence 
from  general  or  from  local  and  individual  causes,  actual 
rents  are  primarily  determined.  In  other  countries,  like  those 
of  continental  Europe  generally,  where  custom  operates 
powerfully  upon  the  rental  of  land,  the  doctrine  is  still  of 
importance  ;  first,  as  clearly  furnishing  the  outside  limit  of 
rent ;  secondly,  as  establishing  the  proposition  that  the 
question  of  rent  or  no  rent,  of  high  rent  or  low  rent,  is  purely 
a  question  between  landlord  and  tenant,  not  between  the 
employer  and  the  employed,  and  not  between  the  producer 
and  the  consumer  of  food. 

268.  Rents  in  the  United  States. — We  have  said  that  in 
some  countries  the  economic  doctrine  of  rent  furnishes  the 
principle  which  primarily  determines  actual  rents.  The 
United  States  offer  the  most  striking  illustration  of  this.  So 
completely  is-  the  American  mind  imbued  with  the  feeling 
that  a  thing  is  worth  what  it  will  bring ;  so  little  sympathy  is 
here  found  for  the  notion  of  classes  which,  by  reason  of  weak- 
ness, must  be  hedged  in  from  competition  with  outside 
forces  ;  so  vast  are  the  tracts  of  arable  land  not  yet  occu- 
pied ;  so  freely  do  our  people  move  from  place  to  place  ;  so 
slight  are  their  attachments  to  locality,  that  no  prejudice  what- 
ever would  be  created  by  a  landlord's  demanding  the  utmost 
rent  which  the  tenant  could,  and  in  the  result,  would,  pay. 
The  fact  that  the  tenant  actually  paid  the  rent  demanded 
would  be  proof  sufficient  that  he  ought  to  pay  it  ;  that  the 
land  was  worth  it,  and  that  the  landlord  showed  only  a 
proper  sense  of  his  own  interest  in  advancing  the  price. 

Nay,  should  the  tenant  refuse  to  pay  the  increased  rent  and 
give  way  to  another,  I  know  not  an  American  community 
where  odium  would  attach  to  the  landlord.  It  would  be  felt, 
it  would  be  freely  said  :  If  the  tenant  is  not  willing  to  pay 
the  price  of  the  land,  let  some  one  take  it  who  is.  And  what 
is  true  of  the  United  States  in  this  particular,  is  true  probably 
in  nearly  equal  degree  of  Canada  and  Australia,  new  coun- 
tries exhibiting  the  same  general  conditions  of  social  life. 

Here  we  see  the  unrestrained  operation  of  the  principle  of 


206  POLITICAL  ECONOMY. 

competition,  with  a  wholly  beneficial  result.  The  tenant  and 
landlord,  being  substantially  on  an  equality  as  to  intelligence, 
enterprise  and  freedom  of  movement,  seek  each  his  own  inter- 
est, yet  without  injury  to  the  other. 

269.  English  Rents. — When,  however,  we  reach  England, 
we  find  a  new  force  entering  actively  to  influence  rents,  all 
on  the  side  of  the  tenant.  Here  the  sentiment  is  universal 
that  there  are  classes  which,  by  reason  of  wealth,  education, 
and  social  position,  are  bound  to  do  and  to  forbear  much,  out 
of  regard  to  the  interests  of  classes  deemed  to  be  permanently 
and  hopelessly  weak. 

The  gentleman  must  never  forget,  in  dealing  with  his  ser- 
vants, his  laborers,  his  tenants,  and  even  in  some  degree  his 
trades'  people,  that  he  is  dealing  with  inferiors  and  depend- 
ents, who  are,  in  a  sense,  under  his  protection,  who  can  not 
easily  defend  themselves  against  encroachment  or  fully  assert 
their  own  interests,  and  that,  in  consequence,  he  is  bound  to 
act  somewhat  differently,  it  may  be  very  differently,  from  what 
he  would  were  he  dealing  with  his  equals. 

But  it  is  in  regard  to  land  that  this  sentiment  operates  with 
the  greatest  force.  It  would  be  impossible  for  an  English 
landed  proprietor  to  feel  that  freedom  in  regard  to  raising 
rents  which  characterizes  the  action  of  an  American  land- 
owner. A  gentleman  there  who  should  undertake  to  force  up 
rents,  acting  on  the  principle  that,  if  his  present  tenants  could 
not  or  would  not  pay  his  price,  he  would  find  others  to  do  it, 
would  feel  the  lash  of  public  indignation  descend  on  his  back 
till  life  was  made  a  burden  to  him.  Instead  of  gaining 
increase  of  style  and  state  through  an  enlargement  of  his 
rent-roll  thus  obtained,  his  social  standing  would  be  destroyed. 

With  public  sentiment  thus  acting  strongly  and  steadily  in 
restraint  of  the  natural  impulses  of  the  landholding  class,  we 
should  look  to  see  a  divergence  of  actual  from  theoretical 
rents,  all  on  the  side  of  the  tenant's  interest ;  and  such,  indeed, 
we  find  to  have  been  the  case  down  to  the  time  when,  per- 
haps ten  years  ago,  American  competition  began  to  operate 
with  prodigious  and  altogether  unprecedented  force.  "The 
rent  of  agricultural  land,"  wrote  Prof.  Thorold  Rogers,  "  is 


RENTS   IN   IRELAND.  207 

seldom  the  maximum  annual  value  of  the  occupancy  ;  in  many 
cases  is  considerably  below  such  an  amount." 

270.  Customary  Rents  on  the  Continent  of  Europe. — On 
the  Continent  of  Europe,  rents  are,  in  general,  not  determined 
by  competition,  but  by  custom,  to  which  Mr.  Mill  has  assigned 
the  same  beneficent  function  in  economics  it  has  always  per- 
formed in  the  sphere  of  politics,  as  "  the  most  powerful  pro- 
tector of  the  weak  against  the  strong."  In  Switzerland, 
France  and  Italy,  rents  were  formerly  fixed  almost  universally 
by  the  custom  of  the  country,  at  a  certain  definite  portion  of 
the  produce  of  the  land.  This  species  of  tenure,  known  as  the 
Metayer  tenancy,  has  been  fully  recognized  as  giving  to  the 
peasantry  the  use  of  land  at  less  than  the  maximum  rents,  as 
determined  by  the  application  of  the  purely  economic  for- 
mula. So  strong  is  custom  in  protecting  the  tenant's  inter- 
est, in  these  countries,  that  oftentimes  it  happens  that,  where 
cities  have  sprung  up  during  the  continuance  of  a  family  upon 
the  soil,  giving  a  local  market  for  produce,  and,  by  conse- 
quence, raising  prices,  the  landlord,  even  in  admitting  a  new 
family  to  the  estate,  does  not  attempt  to  exact  a  larger  share 
of  the  produce. 

"A  proprietor,"  says  Sismondi,  writing  of  Tuscany, 
"  would  not  dare  to  impose  conditions  unusual  in  the  country  ; 
and,  even  in  changing  one  metayer  for  another,  he  alters 
nothing  of  the  terms  of  the  engagement." 

271.  Bents  in  Ireland. — We  have  seen  how  far  actual 
may  be  made  to  diverge  from  theoretical  rents,  all  on  the 
side  of  the  tenant's  interest,  by  the  force  of  public  sentiment. 
Let  us  now  turn  to  a  country  where,  in  the  time  of  which  we 
are  to  speak,  the  population  was  not  homogeneous  ;  where 
prejudices  of  race  and  religion  had  engendered  animosities 
that  descended  from  generation  to  generation  ;  where  no 
friendly  public  opinion  stood  guard  over  the  interests  of  a 
peasantry  whose  improvidence  concurred  with  the  greed  of 
the  landlord  class  in  exciting  a  fierce  and  unremitting  competi- 
tion for  the  occupancy  of  the  soil. 

The  story  of  the  wrongs  done  to  Ireland  is  so  familiar  that 
it  is  needless  to  enter  into  details  to  show  why  it  was  that  in 


208  POLITICAL   ECONOMY. 

Ireland  nothing  intervened  between  landlord  and  tenant  to 
break  the  force  of  competition.  It  was  not  merely  that  the 
two  classes  were  of  different  races,  of  different  religions,  and 
in  some  degree  also  of  different  speech.  The  confiscations 
and  colonizations  of  Elizabeth,  the  wars  of  Cromwell,  and 
lastly  the  Penal  Code,  of  which  the  temperate  Hallam  says, 
"  to  have  exterminated  the  Catholics  by  the  sword,  or  expelled 
them,  like  the  Moriscoes  of  Spain,  would  have  been  little 
more  repugnant  to  justice  and  humanity,  but  incomparably 
more  politic  " — these  were  the  prime  causes  which  had  engen- 
dered antagonisms  and  animosities  such  as  have  rarely,  in 
modern  times,  divided  the  population  of  any  land. 

272.  In   addition  hereto   another   and   most   potent  cause 
contributed  to  the  severity  with  which  rents  were  exacted. 
This  was  absenteeism,  a  great  part  of  the  soil  being  owned  by 
landlords    who   resided    in   England    and    transacted    their 
business  through  local  agents,  or  through  "  middlemen,"  who 
assumed  the  estimated  rental  of  large  estates  and  wrung  from 
the  peasantry  whatever  they  could. 

By  a  kind  of  natural  selection,  out  of  these  agents  and  mid- 
dlemen came  to  be  developed  a  distinct  species  of  social  animal, 
peculiarly  fierce  and  cunning,  of  preternatural  acuteness  to 
search  out  every  possible  occasion  for  fresh  exactions,  with 
heart  of  flint  and  face  of  brass.  Only  men  with  a  natural 
aptitude  for  exaction,  distraint  and  eviction  were  selected  for 
such  a  work  ;  years  of  practice  made  them  perfect  in  the  arts 
of  extortion,  while  the  consciousness  of  being  despised  and 
hated  to  the  point  of  frenzy  choked  every  casual  thought  of 
pity,  and  made  absolute  heartlessness  both  a  professional 
virtue  and  a  condition  of  self-preservation. 

Such  was  the  situation  in  Ireland,  on  the  part  of  the  land- 
lord class,  furnishing  all  the  conditions  necessary  to  a  rigid  and 
relentless  enforcement  of  rent,  up  to  the  economic  maximum 
— i.  e.,  to  the  extent  of  giving  to  the  owner  of  the  land  the 
entire  surplus  produce  above  the  cost  of  cultivation  on  the 
poorest  soils. 

273.  How  was  it  on  the  side  of  the  peasantry?     Were  they 
prepared   to  supply    the   conditions    which   should    prevent 


XENTS  IN   IRELAND.  209 

competition  from  becoming  disastrous,  destructive  ?  Un- 
fortunately, the  peasantry  of  no  country  in  Europe  were 
less  fitted  to  enter  upon  such  a  struggle  with  the  landlord 
class.  Sanguine,  improvident  even  to  recklessness,  the  Irish 
people  clung  the  more  closely  to  the  land  the  more  miserable 
their  lot ;  multiplied  at  a  rate  inconsistent  with  the  capacity 
of  the  soil  for  providing  subsistence,  and  competed  among 
themselves  for  the  occupancy  of  smaller  and  continually 
smaller  parcels  with  a  passionate  eagerness.  Had  it  been  a 
stationary  population,  like  that  of  France,  which  entered  on 
this  struggle  for  the  fruits  of  the  soil,  the  peasantry  might 
have  had  some  chance  ;  but,  with  a  population  at  least  fifty 
per  cent,  beyond  the  capabilities  of  the  soil  to  support,  as  the 
art  of  agriculture  was  then  practiced,  while  every  year  largely 
inci'eased  the  number  of  eager,  penniless  competitors,  misery 
could  hardly  fail  to  result. 

In  the  situation  described,  it  was  a  matter  of  course  that 
rents  were  advanced  to  the  full  limit  allowed  by  the  law  we 
have  stated.  But  there  was  more  than  this  and  worse  than 
this.  Rents  were  demanded  by  the  agent,  or  middleman, 
rents  were  even  offered  by  the  peasantry  in  the  eagerness  of 
their  competition,  in  excess  of  the  economic  maximum  ;  in  ex- 
cess of  what  could  possibly  be  paid  ;  in  many  cases  in  excess, 
incredible  as  it  may  seem,  of  the  whole  annual  produce  of 
the  soil.* 

274.  But,  it  may  be  asked,  if  the  tenants  could  not  pay  the 
rents,  what  harm  to  promise  them  ?  The  landlords  clearly 
would  be  disappointed  ;  but  how  would  the  tenants  suffer? 

The  injury  done  to  the  peasantry  through  this  cause  was 
threefold. 

First.  The  whole  possible  produce  above  the  bare  necessi- 
ties of  subsistence,  belonging  to  the  landlord,  the  tenant  had 
little  interest  in  the  crop  or  in  keeping  up  the  productiveness 

*  Cottier  rents  are  nominal  in  pecuniary  amount,  because  these  rents 
are  fixed  so  high  that  it  is  impossible  for  the  cottiers  ever  to  pay  them. 
The  nominal  amount  of  the  rent  far  exceeds  the  whole  produce  which 
the  land  would  yield. — H.  Fawcett,  "Pol.  Economy."  This  statement  is 
probably  somewhat  too  sweeping. 


2io  POLITICAL  ECONOMY. 

of  the  land.  Having  nothing  to  hope  for,  and  being  in  so 
bad  a  plight  that  there  was  nothing  but  eviction  to  fear,  all 
inspiration  died  out  of  the  cultivation  of  the  soil.  What  was 
done  was  always  the  least  and  the  meanest  that  could  be 

done. 

Secondly.  The  promise  of  excessive,  and  indeed  impossible, 
rents  kept  the  tenant  always  in  debt  to  his  landlord.  Hope- 
less debt  differs  little  from  slavery.  The  Irish  cottier  lived 
by  the  breath  of  the  agent  or  the  middleman. 

Thirdly.  The  joint  effect  of  the  causes  described  was  con- 
tinually to  lower  the  standard  of  living,  and  consequently  the 
cost  of  cultivating  the  no-rent  land,  or  lowest  grade  of  soils, 
by  making  the  peasantry  reckless  regarding  the  increase  of 
their  numbers. 

275.  Effects  of  Unequal  Competition.— In  the  foregoing 
description  of  the  state  of  the  Irish  tenantry  prior  to  1844,  we 
have  an  illustration  of  the  results  of  an  unequal  competition. 
That  same  force  which  in  the  United  States,  operating  upon 
an  intelligent,  alert,  active,  aggressive  population,  under  equal 
laws,  produces  effects  only  beneficial,  in  Ireland,  under  the 
conditions  recited,  produced  disaster. 

276.  Actual  vs.  Theoretical  Rents.— We  see,  then,  that 
practically  there  may  be  three  classes  of  cases  in  respect  to 
rent. 

First.  Where,  under  active  competition,  with  both  parties 
substantially  on  an  eqxiality  in  respect  to  intelligence,  alert- 
ness and  freedom  of  movement,  with  no  laws  or  habits  or 
sentiments  opposing  the  exaction  of  all  which  any  thing  that 
is  the  subject  of  bargain  and  sale  may  be  worth,  rents, 
as  in  the  United  States,  conform  nearly  to  the  Ricardian 
formula. 

Second.  Where,  among  a  population  presenting  wide  dif- 
ferences of  wealth  and  intelligence,  and  perhaps,  also,  of  rank 
and  political  power,  sentiments  of  personal  kindliness  and 
mutual  regard  between  landlord  and  tenant,  and  a  strong 
authoritative  opinion  throughout  the  community  respecting 
the  obligations  imposed  by  the  ownership  of  property,  espe- 
cially of  landed  property,  serve,  as  in  England,  and  in  many 


RENT    OF   PASTURES.  21 1 

countries  of  the  continent  of  Europe,  to  reduce  the  pressure 
of  the  landowning  upon  the  tenant  class  ;  making  the  land- 
lord slow  to  seek  occasions  for  raising  rent  ;  reluctant  in  forc- 
ing matters  with  the  tenant  to  extremity,  and  altogether 
unwilling  to  proceed,  in  the  case  of  a  decent,  well-meaning 
tenant,  to  distraint  and  eviction.  Hence  it  comes  about  that 
rents  vary  widely  from  the  Ricardian  formula,  always  on  the 
side  of  the  tenantry. 

Third.  Where,  with  a  tenantry  ignorant,  improvident,  per- 
haps reckless  in  respect  to  family  increase,  and  by  consequence 
unable  to  offer  effective  resistance  to  an  acquisitive,  aggres- 
sive treatment  of  the  question  of  rents,  little  in  the  way  of 
sentiments  of  personal  kindness  on  the  part  of  landlords,  and 
nothing  in  the  way  of  an  authoritative  public  opinion,  enters 
to  restrain  the  impulses  which  tend  to  advance  rents.  Here 
we  have  a  result  of  ultimate  injury  to  the  economic  interests 
of  both  parties  and  of  the  entire  community. 

277.  The  Rent  of  Pastures. — We  have  thus  far  spoken 
only  of  the  rent  of  arable  land.  We  1  .ave  taken  this  first, 
not  only  because  it  is  most  important,  so  far  as  the  mere 
amount  involved  is  concerned,  but  also  because  the  principles 
governing  rent  can  be  here  most  easily  discerned.  If  we 
have  done  our  work  well,  there  will  be  little  difficulty  in 
applying  the  principles  discovered  to  the  rent  of  pastures, 
water  privileges,  building  lots,  mines  and  wood  lots. 

We  have,  throughout  the  foregoing  extended  illustration, 
assumed  the  existence  of  a  considerable  body  of  no-rent, 
arable  lands,  furnishing  the  base-line  from  which  the  rentals 
of  the  superior  lands  are  respectively  measured.  To  a  certain 
extent  this  assumption  corresponds  to  the  facts  of  agriculture. 
More  commonly,  however,  those  lands  whose  net  productive- 
ness is  so  low  that  they  could  only  be  cultivated  on  the  con- 
dition of  paying  no  rent,  are  turned  into  pasture  or  grazing 
land.  We  might,  therefore,  say  that,  in  many  agricultural 
regions,  the  base-line  for  ascertaining  rents,  is  furnished  by  a 
certain  grade  of  pasture-lands,  large  tracts  of  which  would 
yield  but  a  scanty  subsistence  to  a  few  cattle  or  sheep.  Then 
come  the  more  valuable  pastures,  which  pay  an  appreciable 


212  POLITICAL   ECONOMY. 

rent,  and,  parallel  with  these,  arable  lands  of  moderate  fei- 
tility,  paying,  also,  an  appreciable  rent. 

As  we  go  upward  in  the  scale  of  fertility,  lands  may  be 
transferred  from  grazing  to  tillage,  or  from  tillage  to  graz- 
ing, according  to  the  demand  for  animal  as  compared  with  the 
demand  for  vegetable  productions,  at  the  time  prevailing  in 
the  local  market,  or  according  to  other  conditions  which  we 
need  not  enter  into  here.  Arable  land  is,  also,  often  turned 
into  pasture  for  the  purpose  of  allowing  it  to  recuperate  in 
respect  to  certain  properties  of  the  soil  which  have  been 
unduly  drawn  upon  by  the  crops  of  previous  years. 

While,  thus,  a  large  part  of  the  lands  of  any  agricultural 
district  may  be  used  interchangeably  for  tillage  and  for  graz- 
ing, it  seldom  happens  that  the  best  lands  are  used  at  all,  or, 
at  any  rate,  for  more  than  the  briefest  period,  as  pasture. 
Generally  speaking,  the  poorest  lands  are  always  used  as 
pasture,  the  richest  lands  are  always  cultivated  excepting, 
only,  during  intervals  required  for  recuperation.  It  is  in 
respect  to  the  intermediate  grades  of  soil  that  the  alternation 
referred  to  takes  place.  The  principle  which  determines  the 
rent  of  pasture  lands  is  the  same  as  that  with  which  we  have 
already  become  familiar  through  our  discussion  of  rent  in  its 
application  to  arable  lands. 

278.  The  Rent  of  Water  Privileges. — Water  privileges 
have  three  uses  :  first,  for  power,  in  connection  with  saw-mills, 
grist-mills,  cotton-factoi'ies,  etc.;  secondly,  for  the  supply  of 
water,  for  drinking,  washing,  and  other  domestic  purposes,  to 
cities  and  towns  ;  thirdly,  for  the  irrigation  of  land,  for  the 
purposes  of  agriculture.  The  volume  of  water,  the  conven- 
ience of  its  application  to  the  purpose  for  which  water  is,  in 
the  specific  instance,  required  ;  proximity  to  the  market,  that 
is,  the  place  where  the  water  is  to  be  used,  these  are  the 
principal  considerations  which  determine  the  productiveness 
of  water-privileges  for  the  purposes  of  rent.  For  the  supply 
of  cities  and  towns,  the  quality  of  the  water  also  becomes  an 
element  of  importance. 

Productiveness  being  thus  estimated,  there  are  all  degrees 
of  productiveness  among  water  privileges.  There  are  the 


RENT    OF    BUILDING    LOTS.  213 

no-rent  privileges,  which,  by  reason  of  distance,  or  inconven- 
ience of  application,  or  of  insufficient  or  irregular  flow,  are  not 
used  at  all,  or  only  used  on  condition  that  no  compensation  is 
exacted  therefor.  Above  these,  are  found  low-rent  privileges 
and  high-rent  privileges,  the  measure  of  rent  being  the  degree 
of  productiveness. 

279.  An  instructive  illustration  of  the  relation  of  monopoly 
to  value  is  often  afforded  by  the  action  of  water-power  com- 
panies, in  regulating  the  prices  they  charge  for  power,  according 
to  the  price  of  coal.    In,  for  example,  a  given  textile  manufac- 
turing city  of  New  England,  if  coal  can  be  delivered  at  four  dol- 
lars  a  ton,   the  water-power   company   sells   to   a  cotton   or 
woolen-mill  the  right  to  take  water  sufficient  to  create  (by  its 
fall  through  a  given  number  of  feet),  one-horse  power,  for,  say, 
$24  a  year,  that  amount  representing  the  estimated  cost  of 
maintaining   one-horse   power,    throughoiit   a"  year,  by   the 
consumption  of  coal,  at  four  dollars  a  ton.     Should  the  price 
of  coal  fall  to,  say,  three  dollars,  the  water-power  company 
would  readjust  its  charge  to  meet  the  changed  conditions  of 
competition  with  steam. 

Within  the  limits  thus  determined,  the  price  of  water-power 
is  a  monopoly  price,  being  entirely  irrespective  of  what  it  cost 
the  company  to  acquire  its  rights  and  construct  its  works,  and 
of  what  it  may  cost  to  keep  up  its  service.  To  that  monopoly, 
however,  a  limit  is  set  by  possible  competition  with  steam- 
power. 

280.  The  Bent  of  Building  Lots. — The    rent    of    building 
lots  is  determined  by  the  principles  already  set  forth.     There 
are  no-rent    building   lots  in   abundance.      Every   township 
has  its  squatters  whose  cabins,  placed  out   of  the  way,  on 
worthless  land,  pay  no  rent.     Even  in  the  neighborhood  of 
large  cities,  shanties  are  perched  on  the  rocks  without  objection 
from  owners  of  land  which,  in  another  twenty  or  fifty  years, 
may  bear  a  high  rent. 

But  something  more  is  wanted  in  the  case  of  a  building, 
than  ground  to  stand  upon.  The  building  must  be  placed 
with  reference  to  its  uses  ;  and  it  is  the  productiveness  of  the 
lot  in  that  respect  which  determines  the  rent.  Among  build- 


POLITICAL  ECONOMY. 

ing  lots  that  bear  a  rent,  the  minimum  may  be  said  to  be 
determined  by  the  value  of  land  for  the  purposes  of  agricul- 
ture. A  man  leases  a  hundred  acres  of  arable  land,  of  uniform 
quality,  for  $500,  a  year,  and  places  his  house  upon  some  conven- 
ient spot,  occupying,  with  barns  and  sheds,  half  an  acre  of 
ground.  The  rent  of  this  building  lot  is  $2.50  a  year.  If  he 
were  a  market  gardener  near  a  large  city,  the  rent  of  the  lot  so 
occupied  might  be  $25.  If,  on  the  other  hand,  he  were  a 
market  man  instead  of  a  market  gardener,  he  might  pay  $50 
for  the  rent  of  the  ground  on  which  to  build  his  cottage  in  the 
suburbs  of  the  city,  and  five  times  that  sum  as  the  ground  rent 
of  his  little  shop  in  the  heart  of  the  city.  If  a  banker,  he  could 
better  afford  to  pay  $2,000  or  perhaps  $5,000  ground  rent  on 
State  Street,  or  Wall  Street,  or  Lombard  Street,  than  occupy 
premises  half  a  mile  away  were  he  permitted  to  do  so  for 
nothing. 

The  productiveness  of  land  occupied  for  the  purposes  of 
manufacture  or  trade,  has  reference  to  the  number  of  persons 
passing  through  the  street,  or  to  the  proximity  of  water- 
privileges,  or  wharf -privileges,  or  railroad  stations,  or  to  vari- 
ous other  facilities  for  either  doing  a  greater  amount  of  busi- 
ness with  the  same  capital,  or  for  saving  expenditure  upon  a 
given  amount  of  business.  Such  lots  being  limited  in  number, 
yet  held  by  competing  owners,  their  rent  conforms  closely  to 
the  Ricardian  formula.  In  regard  to  this  kind  of  rent,  com- 
petition is,  if  not  perfect,  at  least  very  active  on  both  sides. 
No  favor  is  shown  or  asked  ;  the  two  parties  to  the  bargain 
are  regarded  as  equal.  The  landlord  gets  all  the  land  will 
bring,  if  not  from  one  tenant,  then  from  another.  The  ten- 
ant expects  to  pay  all  that  any  man  will  be  willing  to  give  for 
the  commercial  advantages  of  occupying  the  ground. 

281.  The  Rent  of  Mines. — The  rent  of  mines  is  not  gov- 
erned wholly  by  the  economic  law  of  rent  which,  as  stated 
(par.  253),  has  reference  to  the  native  and  indestructible  powers 
of  the  soil.  Under  proper  care  and  husbandry,  cultivation 
does  not  exhaust  the  soil.  With  rotation  of  crops,  with 
annual  manuring  and  an  occasional  season  of  rest,  such  as  are 
provided  for  in  most  English  leases,  the  land  returns  to  its 


RENT    OF   MINES.  215 

owner,  or  his  representative,  after  30,  or  50,  or  99  years,  with 
unimpaired  virtue.  The  enjoyment  of  water  privileges  does 
not  exhaust  the  capacity  of  the  river.  The  occupation  of  the 
ground  for  a  generation  does  not  contract  the  surface 
available  for  the  same  or  a  different  use  by  another 
generation. 

By  the  very  nature  of  such  deposits,  the  enjoyment  of  min- 
ing privileges  diminishes  the  sum  of  the  mineral  in  existence. 
The  mine  may  be  "  worked  out  "  in  ten  years  or  in  twenty  or 
in  fifty,  and  nothing  but  an  ugly  pit  be  returned  to  the  owner, 
at  the  expiry  of  the  lease.  The  rent  of  such  properties  is  not, 
therefore,  regulated  by  the  Ricardian  formula,  without  modi- 
fication. The  rent  must  be  increased  sufficiently  to  compen- 
sate for  the  ultimate  exhaustion  of  the  deposits  :  the  destruc- 
tion of  the  value  of  the  estate.  Otherwise,  the  rule  of  rent 
for  these  properties  is  the  same  as  in  the  case  "of  other  natural 
agents.  The  chief  elements,  here,  in  determining  productive- 
ness for  the  purposes  of  rent,  are  the  quality  of  the  product, 
the  extent  of  the  deposits,  the  depth  of  working,  the  distance 
from  a  market. 

There  are,  in  the  United  States,  vast  deposits  of  coal,  for 
instance,  near  the  surface,  not  far  from  a  market,  which  will 
not  pay  for  working,  even  if  no  rent  be  exacted,  because  the 
quality  is  poor,  though  the  coal  will  burn,  will  give  out  light 
and  heat,  and,  if  delivered  at  the  furnace  free  of  cost,  would 
be  worth  using. 

There  are  other  deposits  of  coal,  of  excellent  quality, 
which  will  not  pay  for  working  by  reason  of  the  thinness  of 
seams,  or  their  narrow  extent  laterally.  There  are,  again, 
vast  deposits  of  good  coal,  which,  by  reason  of  their  depth 
below  the  surface,  are  not  sought  by  productive  industry  and 
perhaps  never  will  be.  There  are  still  others  which,  by  rea- 
son of  distance  from  market  are  not  now  worth  taking  up 
at  the  government  rates,  which  may  in  another  century  supply 
great  manufacturing  cities  with  power.  These  and  other 
mines,  a  little  more  fortunate  in  character  or  location,  which 
will  just  pay  for  working,  fui-nish  the  no-rent  mines.  Above 
these  are  mines  which  pay  rent,  the  degree  of  productiveness 


216  POLITICAL   ECONOMY. 

rising  until  the  rental  of  a  single  mine  becomes  the  income  of 
a  prince. 

282.  The  Rent  of  Woodlots.— Woodlots  and  timber  lands 
are,  in  fact,  seldom  rented  in  the  United  States  and  other 
new  countries  ;  first,  on  account  of  the  difficulty  which  would 
be  experienced  in  preventing  waste  and  abuse  by  a  tenant  ; 
and,  secondly,  because  it  is  generally  more  profitable  to  cut 
off  the  whole  body  of  wood  or  timber  at  once,  than  to  pick 
from  it,  year  by  year,  a  certain  proportion  of  what  is  stand- 
ing. For  these  reasons,  woodlots,  when  they  reach  the  right 
condition  for  cutting,  are  commonly  sold  to  large  operators, 
at  prices  determined  by  the  "  net  productiveness "  of  the 
individual  tracts,  reference  being  had  to  the  amount  and 
quality  of  timber  and  other  wood,  to  the  distance  from  market, 
facilities  for  transportation,  etc. 

The  price  at  which  an  individual  woodlot  may  sell,  once  in 
thirty  or  fifty  years,  may  properly  be  conceived  of  as  related 
to  an  annual  rental,  not  collected  at  the  time,  but  allowed  to 
accumulate  against  the  day  of  sale. 

In  old  countries,  where  the  value  of  wood  and  timber  bears 
a  much  higher  proportion  to  the  wages  of  labor,  than  in  new 
countries,  and  where  the  tracts  so  occupied  are  generally 
surrounded  by  dense  populations,  woodlots  and  forests  are 
more  commonly  culled  from  year  to  year,  instead  of  being  cut 
off  all  at  once.  In  such  a  condition,  the  Ricardian  formula 
of  rent  would  strictly  apply  to  the  several  tracts  supplying 
any  given  market,  although,  as  a  matter  of  fact,  an  owner 
would  be  likely  to  conduct  the  cutting  of  the  wood  and  tim- 
ber himself,  or  through  his  paid  agents,  on  account  of  the 
difficulty,  above  referred  to,  of  preventing  waste  and  abuse  on 
the  part  of  a  tenant. 

283.  The  Rent  of  Buildings  and  of  Permanent  Improve- 
ments on  the  Land.— The  so-called  rent  of  buildings,  exclusive 
of  ground  rent,  is  not  governed  at  all  by  the  economic  law 
of  rent,  but  by  the  principles  which  regulate  the  Interest  on 
Capital,  of  which  we  are  next  to  speak.  A  man  owns  a  build- 
ing lot,  for  whic^i  he  could  obtain  a  ground  rent,  that  is,  rent 
proper.  Being  also  a  capitalist,  he  erects  a  building  thereon. 


THE    UNEARNED    INCREMENT.  217 

Why  does  he  so  ?  Because  he  believes  that,  in  addition  to  the 
rent  of  the  ground,  he  can  also  obtain,  for  the  occupation  of 
the  house  erected  thereon,  a  fair  remuneration  for  the  use  of 
his  capital,  a  remuneration  equal  (damage,  trouble  and  risk 
of  loss  being  taken  into  account)  to  what  he  would  receive 
were  he  to  put  his  capital  into  the  form  of  live  stock  or  rail- 
road shares,  or  government  bonds.  The  building  is  an  invest- 
ment of  capital.  If  his  investment  has  been  shrewdly  made, 
he  will  receive  from  his  tenants  a  sum  which,  in  the  view  of 
the  economist,  consists  of  two  parts,  rent  proper  —  ground 
rent — and  interest.  We  shall  see,  in  the  next  chapter,  that 
these  two  elements  of  that  remuneration  are  governed  by 
widely  different  laws. 

284.  The  Unearned  Increment  of  Land.— We  have  seen 
how  rent  arises,  under  the  private  ownership  of  land,  and 
what  principles  govern  its  amount  and  economic  direction. 
We  have  seen  that  rent  is  purely  a  question  between  landlord 
and  tenant,  not  between  employer  and  employed,  not  between 
the  producer  and  the  consumer  of  agricultural  produce.  We 
have  seen  that,  conceding  the  private  ownership  of  land,  rent 
must,  so  far  as  economic  forces  are  concerned,  remain  in  the 
hands  of  the  owner  of  land  ;  that  it  can  only  get  into  the 
hands  of  the  tenant  as  a  gift  ;  that  if  it  reaches  the  hands  of 
the  tenant,  no  economic  forces  will  carry  it  into  the  hands  of 
the  agricultural  laborer  or  of  the  consumer  of  food.  It  can 
only  get  there  by  a  further  gift  or  series  of  gifts. 

We  have  also  seen  that,  whenever  the  limit  of  cultivation  is 
lowered,  that  is,  whenever  a  less  productive  grade  of  soils  is, 
by  the  increasing  demands  of  population  for  subsistence, 
brought  under  cultivation,  the  rents  of  all  previously  culti- 
vated lands  are  correspondingly  raised,  to  the  enrichment  of 
their  owners,  not  by  reason  of  any  increase  in  the  yield  of 
such  lands,  or  by  reason  of  any  greater  exertions  put  forth  by 
the  owners,  but  solely  by  reason  of  the  necessity  of  cultiva- 
ting a  lower  grade  of  soils. 

Upon  this  view  of  rent,  has  arisen  the  question,  Why  should, 
the  private  ownership  of  land  be  permitted  to  exist  ?  at  any 
rate,  why  should  this  incident  of  private  ownership,  the- 


2 1 8  POLITICAL  ECONOMY. 

aggrandizement  of  the  owner  through  the  growth  of  the  com- 
munity, be  longer  permitted  to  exist?  Why  should  not  this 
•"  unearned  increment  of  land,"  to  use  Mr.  Mill's  phrase,  go  to 
the  community,  and  not  to  any  individual  ? 

This  demand  has  been  made  very  vigorously,  of  late  years, 
by  a  school  of  writers  which  embraces  more  than  one  econo- 
mist of  reputation.  As  the  elements  of  the  question  are  not 
purely  economic,  but  embrace  considerations  of  political 
«quity  and  political  expediency,  I  shall  reserve  all  remark 
•concerning  it  till  we  reach  Part  VI. 


CHAPTER  III. 

INTEBEST. 

285.  Definition  of  Interest. — We  have  seen  one  share  cut 
off  from  the  product  of  industry — rent ;  one  claimant  satisfied 
— the  landlord.  The  reader  now  sees  why  this  topic  was  first 
treated.  In  economic  theory,  this  is  ever  the  first  claim  to  be 
-adjusted  and  paid.  We  can  make  no  progress — not  so  much 
as  by  a  single  step — toward  discovering  the  principles  which 
govern  the  division  of  the  product  of  industry  among  capi- 
talists, employers,  and  laborers,  until  rent  is  taken  out,  until 
the  claim  of  the  landlord  is  satisfied.  Hence  the  topic,  Rent, 
•comes  first,  in  a  treatise  on  the  distribution  of  wealth. 

We  are  now  to  speak  of  Interest :  the  share  of  the  Capitalist 
in  the  product  of  industry. 

In  Part  II.  we  inquired  into  the  origin  and  office  of  capital. 
We  saw  that  capital  consists  of  savings  out  of  earnings,  the 
native  powers  of  the  earth,  air  and  water  not  being  regarded 
as  capital.  Wealth  having  been  produced,  some  of  it,  much 
of  it,  must  soon  be  consumed,  in  order  to  sustain  the  produc- 
ing classes,  and  to  repair  the  waste  inevitably  attendant  upon 
production,  and  even  upon  the  mere  lapse  of  time.  All  of  it 


THE    THEORY  OF  INTEREST.  219 

may  be  so  consumed,  and  will  be,  under  the  urgent  and  con 
stantly  recurring  desires  which  wealth  alone  can  satisfy,  unless 
some  motive  for  saving  can  be  found  which  shall  prove  strong 
enough  to  withstand  the  impulses  to  immediate  gratification, 
and  to  wrest  a  portion  of  wealth  from  the  jaws  of  appetite. 
We  have  shown  what  that  motive  is,  and  how  it  manifests 
itself  in  a  barbarous  condition. 

In  an  advanced  state  of  society,  the  motive  to  saving  is  not 
so  much  found  in  the  desire  of  the  individual  to  accumulate 
tools  and  materials  for  his  own  handling,  as  in  the  desire  to 
obtain  interest  from  some  one  else,  for  the  use  of  that  portion 
of  wealth  whose  consumption  is  thus  postponed.  To  the 
varying  strength  of  this  motive  with  different  men,  and 
different  races,  we  shall  have  occasion  to  refer  further  on. 

286.  Interest  not  Paid  for  the  Use  of  Money.— It  has  been 
said  that  interest  is  the  compensation  paid  for  "the  use  of  cap- 
ital. The  usual  form  of  statement  is  that  interest  is  paid 
for  the  use  of  money.  Broadly  speaking,  this  is  not  true. 
Money,  which  is  one  of  the  many  forms  of  capital,  is,  indeed, 
often  the  agent  in  effecting  the  loan  of  other  species  of  capi- 
tal. But  in  these  cases,  it  is  not  the  money,  philosophically 
considered,  that  is  borrowed  :  The  interest  paid  is  for  the 
use  of  the  capital  obtained  through  that  agency.  One  bor- 
rows $5,000,  and  gives  a  note  for  that  sum,  with  interest. 
With  this  money  he  purchases  live  stock,  machinery  for  his 
factory,  or  goods  for  his  trade  :  these  were  what  he  wanted  ; 
these  were  what  he  really  borrowed  ;  these  are  what  he 
pays  interest  upon.  The  money  was  solely  a  means  to  that 
end. 

But  money  is  not  always,  it  is  not  in  a  majority  of  cases, 
in  a  highly  advanced  state  of  industrial  society  it  is,  indeed, 
rarely,  the  agent  in  effecting  the  loan  of  capital.  The  coun- 
try merchant  buys  goods  and  gives  his  notes  for  two,  four, 
and  six  months,  promising  to  pay  the  price  with  interest. 
Interest  on  what  ?  On  money  ?  No  money  passed  in  the 
transaction.  What  was  borrowed  was  hardware  and  crockery, 
dry  goods,  and  groceries.  The  young  farmer  buys  cattle  to 
stock  his  farm,  and  gives  his  note,  promising  to  pay,  with 


220  POLITICAL  ECONOMY. 

interest  :  not  interest  on  money,  for  he  has  had  none,  but 
interest  on  the  value  of  cows  and  working  oxen. 

287.  The  Rate  of  Interest. — Let  us  now  inquire  how  the 
rate  of  interest  is  determined. 

Since  the  use  of  capital  is  a  matter  of  bargain  and  sale,  or  of 
exchange,  what  should  determine  the  rate  of  interest  but  the 
demand  for,  and  the  supply  of,  loanable  capital  ? 

Here  we  see  the  futility  of  the  notion,  which,  from  time  to 
time,  obtains  a  strong  hold  on  the  public  mind  of  America, 
and,  indeed,  of  all  new  countries,  that  the  rate  of  interest  is 
to  be  lowered  by  increasing  the  supply  of  money  through  the 
issue  of  paper  notes.  Men  wish  to  borrow  that  they  may  get 
control  of  the  agencies  of  production  :  capital  in  its  various 
forms.  The  amount  to  be  paid  for  the  use  of  capital  will 
depend  on  its  abundance  compared  with  the  occasions  for  its 
productive  use.  The  issue  of  money  will  not  increase  the 
number  of  horses  and  cattle  and  plows,  nor  will  it  build  shops 
and  warehouses  or  construct  machinery  for  manufacture  or 
for  transport. 

If  the  people  of  a  community  be  thriving  and  progressive, 
the  demand  for  capital,  to  start  new  enterprises,  or  to  enlarge 
those  already  established,  will  be  very  great.  If  the  commu- 
nity be,  also,  young,  having  brought  to  new  fields  the  social 
and  industrial  ideas,  tastes  and  ambitions  of  an  old  society, 
the  supply  of  capital  will  be  scanty,  and  the  rate  of  interest 
will  rule  high. 

288.  Is  this  high  rate  of  interest  a  hardship  ?  No,  the  hard- 
ship lies  in  the  scarcity  of  capital.      The  high  rate  of  interest 
becomes  the  active  means  of  removing  that  hardship,  through 
increasing  the  supply  of  capital  available  to  meet  the  demand. 
A  high  rate  of  interest  is  not  an  evil,  but  the  cure  of  an  evil. 
How  is  this  ? 

Capital  is,  as  we  have  seen,  the  result  of  saving.  Interest, 
then,  is  the  reward  of  abstinence.  A  part,  a  large  part,  of 
all  produced  wealth  must  be  at  once  consumed  to  meet  the 
conditions  of  human  existence  ;  but  the  remaining  portion 
may  be  consumed  or  may  be  accumulated,  according  to  the 
will  of  the  owner.  The  strength  of  the  motive  to  accumu- 


HIGH  RATES   OF  INTEREST.  22\ 

lation  will  vary  with  the  reward  of  abstinence.  If  that  be 
high,  the  disposition  to  save  will  be  strengthened,  and  capital 
will  be  rapidly  accumulated  ;  if  that  be  low,  that  disposition 
will  be  relatively  weak,  and  capital  will  increase  slowly,  if, 
indeed,  the  body  of  existing  capital  be  not  dissipated  at  the 
demands  of  appetite. 

We  do  not  say  that  the  strength  of  the  disposition  will 
increase  proportionally  to  the  increase  of  remuneration  ;  that 
it  will,  for  instance,  be  one-fifth  greater  at  six  per  cent,  inter- 
est than  at  five  per  cent.  Moral  philosophy  has  reached  no 
such  precision  in  gauging  motives.  But  it  is  certain  that, 
among  the  same  people,  and  at  the  same  time,  the  higher  the 
rate  of  interest  the  stronger  will  be  the  motives  which  lead  to 
saving  :  the  more  rapid  the  accumulation  of  capital.* 

So  we  see  that  a  high  rate  of  interest,  instead  of  being  the 
cause  of  an  evil,  is  really  its  cure  ;  and  that  "to  depress  the 
rate  of  interest,  as,  for  example,  by  force  of  law,  would  be  to 
retard  the  processes  by  which  capital  is  supplied. 

As  a  high  rate  of  interest  is  not  in  itself  an  evil,  so  a  low 
rate  of  interest  does  not  necessarily  imply  a  condition  which 
is  a  subject  of  congratulation.  A  low  rate  of  interest  may 
mean  that,  in  a  thriving,  progressive  community,  the  accumu- 
lation of  capital  has  gone  on  so  rapidly  as  to  outrun  the  occa- 
sions for  its  productive  use.  It  may  mean  that  the  people  are  so 
dull,  indolent  and  unambitious,  or  the  state  of  society  so 
disordered,  that  commercial  and  manufacturing  enterprises 
are  not  undertaken,  and  no  enlargement  of  traditional  indus- 
tries is  looked  for.  A  small  amount  of  capital  more  than 
suffices  for  such  scanty  needs. 

*  In  general,  taking  all  classes  of  producers  into  account,  this  will  be  so. 
Yet  the  effect  of  a  reduction  of  the  rate  of  interest  is  not  wholly  upon 
one  side.  Prof.  Marshall  very  justly  exhibits  an  effect  of  a  reduction  of 
the  rate  of  interest,  which,  with  a  certain  class  of  producers,  might  and 
probably  would  operate  in  the  opposite  direction. 

"  A  high  rate  of  interest  no  doubt  affords  a  liberal  reward  of  abstinence, 
and  stimulates  the  saving  of  all  who  are  ambitious  of  earning  social  posir 
tion  by  their  wealth.  Again,  if  a  man  is  in  doubt  whether  to  save  in 
order  to  make  provision  for  himself  or  his  family,  the  expectation  of  a 


M2  POLITICAL  ECONOMY. 

289.  The  Rate  of  Interest  tends  to  a  Decline. — Despite 
the  urgent  and  ever-recurring  demands  for  the  consumption 
of  wealth  in  various  forms  of  self-indulgence  ;  despite   the 
occasional  reversal  of  the  course  of  accumulation,  in  the  occur- 
rence of  war  ;  despite  all  the  effects  of  misgovernment  and 
social  disorder,  wealth  tends  strongly  to  increase.     Since  the 
application   of  steam-power  to  manufactures  and  transporta- 
tion, this  rate  of  increase  has  been  so  great  as  even  to  trans- 
cend the  demand  for  the  uses  of  wealth  in  undertaking  new 
industrial  and  commercial  enterprises,  and  thus,  with  some 
temporary  exceptions,  interest  has  tended  to  decline. 

In  this  respect  interest  differs  markedly,  we  may  say,  essen- 
tially, from  rent.  The  latter  tends  to  rise,  with  the  lapse  of 
time,  the  increase  of  population,  the  growth  of  wealth.  The 
former  tends  to  decline  under  the  same  conditions.  This  con- 
stitutes one  of  the  two  reasons  why  the  economist  insists 
upon  treating  interest  and  rent  separately  in  his  discussion 
of  the  distribution  of  the  product  of  industry.  The  second  of 
these  reasons  will  now  be  stated. 

290.  There  is  not  any  No-Interest  Capital. — We  have 
seen  (par.  255)  that  the  whole  theory  of  rent  rests  on  the 
assumption  that  there  is  a  body  of  no-rent  lands.    These  serve 


high  rate  of  interest  may  induce  him  to  save  ;  because  the  higher  the  rate 
of  interest,  the  larger  the  amount  of  future  enjoyment  which  can  be 
obtained  by  sacrificing  a  given  amount  of  present  enjoyment. 

"  But  the  history  of  the  past  and  the  observation  of  the  present  show 
that  it  is  a  man's  temperament,  much  more  than  the  rate  of  interest  to  be 
got  for  his  savings,  which  determines  whether  he  makes  provision  for 
his  old  age  and  for  his  family,  or  not.  Most  of  those  who  make  such  a 
provision  would  do  so  equally  whether  the  rate  of  interest  were  low  or 
high.  And  when  a  man  has  once  determined  to  provide  a  certain  annual 
income,  he  will  find  that  he  has  to  save  more  if  the  rate  of  interest  is 
low  than  if  it  is  high.  Suppose,  for  instance,  that  a  man  wishes  to  pro- 
vide an  income  of  £400  a  year  on  which  he  may  retire  from  business,  or 
to  insure  £400  a  year  for  his  wife  and  children  after  his  death.  If  the 
current  rate  of  interest  is  5  per  cent.,  he  need  only  put  by  £8,000  or 
insure  his  life  for  £8,000  ;  but  if  it  is  four  per  cent.,  he  must  save  £10,000 
or  insure  his  life  for  £10,000." 


LOW  KATES  OF  INTEREST.  223 

as  the  base  from  which  to  measure  upwards  the  successive 
degrees  of  productiveness  of  the  lands  bearing  rent. 

In  the  theory  of  capital  there  is  nothing  to  correspond  to 
this.  The  economist  does  not  find  any  no-interest  capital. 
In  theory,  all  capital  bears  an  interest,  and  all  portions  of 
capital  bear  equal  interest.  If  one  portion,  in  fact,  brings  no 
interest  to  its  owner,  or  brings  an  interest  below  that  obtained 
by  the  owners  of  other  portions,  this  is  because  of  misadven- 
ture, due  to  accident  or  erroneous  calculation,  not  to  the 
nature  of  the  capital  itself. 

Of  course,  it  is  anticipated  by  the  political  economist  that 
the  interest  realized  by  portions  of  capital  actually  loaned  will 
vary  not  a  little,  even  within  the  same  market,  inasmuch  as 
competition  is  never  perfect  in  any  sphere  ;  but  what  has 
been  stated  shows  how  fundamentally  the  theory  of  interest 
differs  from  that  of  rent. 

291.  Is  there  a  Minimum  Rate  of  Interest?  —  We  have 
said  that  the  inducement  to  save  diminishes,  other  things 
equal,  as  the  rate  of  interest  falls.  Is  there  a  point  at  which 
the  disposition  to  consume  wealth  for  purposes  of  comfort  or 
luxury  will  equal  in  strength  the  disposition  to  acquire  an 
annual  income  by  saving  wealth  for  productive  uses,  so  that  no 
further  accumulation  will  take  place,  the  savings  out  of  earn- 
ings thereafter  being  only  sufficient  to  make  good  the  waste  of 
production  and  keep  up  the  stock  of  capital  ? 

If  there  is  a  minimum  rate  of  interest,  it  is  very  low.  Fif- 
teen or  twenty  years  ago,  six  per  cent,  was  the  traditional  rate 
of  interest  in  New  England,  and  probably  few  of  us  then 
thought  that,  if  the  rate  were  to  go  lower,  it  really  would  be 
worth  while  to  "  save."  We  had  become  so  accustomed  to 
six  per  cent,  that  it  had  come  to  seem  as  if  there  were  some 
law  of  nature  that  fixed  that  rate.  Six  per  cent.  ?  "Why  of 
course  a  man  would  get  six  per  cent.  ?  Yet  since  that  time 
we  have  seen  the  rate  of  interest  steadily  fall,  in  consequence 
of  the  vast  accumulation  of  capital,  till  now  loans  of  capital 
are  to  be  had  on  good  security  at  four  and  one-half  or  even 
four  per  cent.,  while  the  government  borrows  all  it  wants  at 
three  and  one-half  or  even  three.  The  English  government 


224  POLITICAL  ECONOMY. 

has  long  borrowed  at  three  per  cent.  The  government  of 
Holland  during  the  most  flourishing  period  of  the  republic, 
was  even  able  to  borrow  at  two  per  cent. 

292.  Income  from  Investments,  how  Computed.— Mis- 
apprehensions regarding  the  actual  rate  of  interest  are  not 
infrequently  occasioned  by  the  failure  to  note,  what  would 
appear  very  plain,  that  the  amount  of  interest  paid  upon  bonds 
or  notes,  and  the  amount  of  dividends  declared  upon  shares  of 
corporate  stock,  should  be  compared,  not  with  a  nominal  par 
value,  but  with  the  sum  actually  invested  in  the  purchase  of 
such  bonds,  stocks,  notes  or  shares,  or  else  with  the  sum  for 
which  these  would  at  the  time  bring,  if  sold. 

Thus,  we  read  in  the  newspapers,  that  the  Boston  and 
Maine  railroad,  in  May,  1887,  declared  a  semi-annual  dividend 
of  five  per  cent.,  being  at  the  rate  of  ten  per  cent.,  a 
year. 

This  statement,  by  itself,  might  create  the  impression  that 
investment  in  the  stock  of  this  road  would  be  a  peculiarly 
profitable  one.  A  reference,  however,  to  the  stock  quotations, 
in  another  column  of  the  same  newspaper,  would  have  shown 
that  the  shares  of  this  railroad  were  then  selling  at  about 
$230,  on  the  par  of  $100.  A  person,  therefore,  buying  a  share 
of  this  stock,  in  April,  1887,  would  have  received  but  a  trifle 
over  four  per  cent.,  per  annum,  which  was  about  the  rate  of 
interest  then  prevailing  upon  "  bottom  mortgages." 

On  the  other  hand,  a  number  of  railroad  companies,  during 
the  great  speculative  extension,  1868-1873,  advertised  to  sell 
at  seventy  dollars,  bonds  for  one  hundred  dollars,  bearing 
seven  per  cent,  interest.  What,  then,  was  the  rate  of  interest 
promised  on  this  investment  ?  Seven  per  cent.  ?  No  :  the 
rate  of  interest  promised  to  be  paid  was  ten  per  cent.,  and, 
even,  as  we  shall  see,  more  than  that.  The  investor  paid 
seventy  dollars  for  a  bond,  to  receive  upon  it  annually  seven 
dollars  of  interest,  per  year,  until  the  bond  should  mature,  and 
then  to  receive  $100  in  money,  whereas  he  only  paid  down 
$70.  In  other  woi'ds,  he  was,  on  the  expiry  of  the  bond,  to 
receive  a  premium  of  $30,  over  and  above  an  annual  interest 
of  ten  per  cent.  The  "present  value"  of  this  premium 


FALSE  INTEREST :  INSURANCE.  225 

would  depend   on  the   length    of   time  the   bond  had   "  to 
run." 

293.  False  Interest :  Insurance  of  the  Principal.— A  great 
deal  that  is  paid  under  the  name  of  interest  is  not  interest  in 
the  true  sense,  but  is  merely  a  premium  for  the  insurance  of 
the  principal  sum   lent.     Real  interest  only  comprises   that 
part  of  the  payment  made  which  would  be  paid,  were  the 
return  of  the  principal,  at  the  date  of  the  maturity  of  the  obli- 
gation, a  matter  of  reasonable  certainty.     Absolute  assurance 
can  be  reached  in  no  human  transaction  ;  but  where  the  risk 
is  so  small  that  it  amounts  to  nothing  in  the  mind  of  the 
lender,   as  in  the  case  of  British  consols,  or  of   a  "  bottom 
mortgage,"  where  the  sum  lent  is  only  a  half  or  a  third  of  the 
value  of  improved  real  estate,  we  have  an  instance  of  real  in- 
terest, pure  and  simple. 

Whatever,  in  the  same  market,  at  the  same  time,  is  paid 
above  this,  for  the  use  of  capital,  is  of  the  nature  of  insurance 
against  the  risk  of  losing  the  amount  lent.  If  the  rate  of  real 
interest  in  London  is  3  per  cent.,  as  determined  by  the  price 
of  consols,  loans  on  various  kinds  of  fair  security  may  range 
from  that  rate  up  to  5  or  6  per  cent. ;  while  all  the  time  note- 
brokers  are  "  shaving  "  the  "  paper  "  of  second  and  third  rate 
dealers  at  from  10  to  20  per  cent,  discount. 

294.  Extra-Hazardous  Bisks. — The  operation  of  the  mind 
of  the  person  who  lends  capital,  at  a  high  interest,  upon  poor 
security,  is  a  familiar  one.     He  sees  the  opportunity  to  obtain 
interest  proper — the  normal  remuneration  for  forbearing  to 
consume    in    immediate    self-indulgence   the  wealth   he   has 
created,  or  come  into  possession  of — without  encountering  any 
appreciable  risk  of  losing  the  principal  sum.     But  there  is 
offered  him  a  higher,  perhaps  a  much  higher,  rate  of  interest, 
for  a  loan  into  which  a  chance  of  total  loss  enters.     His  mind 
balances  the  risk  against  the  prize.     The  yearly  value  of  the 
latter  is  definite.     It  is  three,  five  or  ten  per  cent,  on  the  sum 
asked  to  be  lent.     Were  he  to  receive  this  added  interest  for  a 
sufficient  number  of  years,  he  could  even  afford  to  lose  the 
principal.     He  may  receive  the  interest  during  the  full  term 
of  the  obligation,  and  then  have  his  principal  back  again.    He 


226  POLITICAL  ECONOMY. 

knows  also  that  he  may  receive  but  one  or  two  annual  pay- 
ments of  interest,  and  then  be  compelled  to  recognize  his 
investment  as  a  total  loss. 

Of  the  degree  of  risk  there  is  no  measure.  The  ablest 
statistician,  the  first  financier  of  the  world,  could  give  no 
mathematical  statement  of  the  chances  for  or  against  the  ulti- 
mate repayment  of  the  loan.  The  matter  lies  very  vaguely 
even  in  the  mind  of  the  shrewdest  banker  or  broker.  He  sees 
that  there  is  great  risk  or  little  risk,  very  great  risk  or  very 
little  risk,  or  that  the  elements  on  which  the  ability  of  the  bor- 
rower is  to  depend  are  altogether  shrouded  in  uncertainty  ; 
but  as  to  giving  a  mathematical  expression  to  the  value  of  the 
loan,  based  on  the  chances  of  loss,  the  man  who  does  this  is. 
deceiving  either  himself  or  some  one  else. 

295.  With  the  great  majority  of  lenders  no  calculation 
whatever,  deserving  of  the  name,  enters  into  the  negotiation 
of  loans  where  more  than  double  interest  is  paid.  The  capi- 
talist is  simply  tempted  beyond  what  he  is  able  to  bear,  or 
else,  if  a  man  of  another  temper,  the  enhanced  inducement 
becomes  of  itself  a  reason  for  refusing  to  lend  his  money,  and 
he  shuts  the  door  upon  negotiation.  Look  at  the  hundreds  of 
millions,  the  thousands  of  millions,  that  have  been  sunk  in 
railway  shares  and  mining  stocks  by  persons  who  had  not  the 
smallest  qualifications  for  estimating  the  value  of  the  risk,  but 
whose  prudence  gave  way  under  an  offer  of  ten,  or  twelve,  or 
twenty  per  cent.  Writers  on  Interest  are  too  much  given  to 
assuming  that  the  losses  sustained  in  extra-hazardous  invest- 
ments are  balanced  by  the  gains,  and  that  the  "  average  rate  " 
is  somehow  maintained.  The  fact  is,  few  lenders  are  capable 
of  making  any  computation  of  the  value  of  the  risks  they  take  ; 
few  even  go  through  the  form  of  doing  so. 

The  only  thing  that  can  be  said  with  assurance  is  that  the  vast 
majority  of  lenders  on  extra-hazardous  risks  are  losers.  The 
high  rate  of  interest  proves  a  snare.  Tempted  by  the  offer  of 
12  or  20  per  cent.,  they  take  risks  for  which  40  or  50  would 
be  inadequate.  Interest  is  paid,  dividends  are  declared,  just 
long  enough  to  complete  the  subscription,  just  long  enough  ta 
secure  the  last  gudgeon  in  the  pool.  And  it  is  often  astonish- 


EXTRA-HAZARDOUS  LOANS.  227 

ing  to  note  the  class  of  men  who  contribute  to  a  scheme  which 
is  in  its  very  terms  an  insult  to  common-sense.  Bought  wit 
is  the  best  wit  ;  but  in  this  matter,  experience  seldom  suffices 
for  wisdom.  The  susceptibility  to  humbug  is  perennial  in  the 
human  breast.  After  a  dance  of  folly,  in  which  figure  "  The 
Periwig  Company,  and  the  Spanish-Jackass  Company,  and  the 
Quicksilver-fixation  Company  ;  "  in  which  prospectus  vies  with 
prospectus  to  see  which  shall  be  the  more  preposterous  ;  and  in 
which  investor  vies  with  investor  in  recklessness,  there  comes, 
indeed,  a  resting  spell,  more  through  exhaustion  of  means  than 
through  acquired  prudence ;  but  the  first  tingle  of  reviving 
activity  in  trade  starts  the  fever  of  speculation  anew,  and  the 
knaves  find  the  dupes  as  numerous  and  as  credulous  as  ever. 

296.  The  Wreckers  of  Trade.— The  foregoing  remarks  apply- 
to  the  great  majority  of  investors  who  take  extra-hazardous 
risks.     Yet  there  are  in  every  large  commercial  community 
those  who  reap  enormous  rates  of  interest  with  only  rare  losses 
to  offset  their  gains.     These  are  men  with  preternatural  sagacity 
to  know  when  it  is  safe  to  trust  a  rogue,  how  far  to  ride  with 
a  spendthrift  towards  his  ruin,  just  the  point  at  which  to  leave 
a  tottering  house  whose  foundations  they  have  undermined  by 
drains  of    exorbitant  interest,  just  the  moment  at  which  to 
"  unload  "  a  stock  ;  men  with  the  cunning  to  secure  themselves 
against  loss,  whoever  may  suffer  ;  men  who  have  the  hardness 
to  exact  the  last  penny  of  their  dues,  at  whatever  distress  to 
the  debtor.     Such  men  are  the  wreckers  of  trade.     Their  gains- 
are  great,  for  they  reap  the  enormous  profits  of  extra-hazardous 
risks,  yet  seldom  lose  in  the  principal  sum  lent.     Rarely,  in- 
deed, is  an  embarrassed  firm  saved  by  their  aid.     Resort  to 
them  is  the  almost  certain  precursor  of  ruin.     It  serves  to  delay 
the  catastrophe  a  little,  only  to  make  it  utter  and  remediless 
at  the  last. 

297.  Double  Interest.— The  foregoing  "remarks  apply  only 
to  extra-hazardous  risks,  where,  to  put  it  roundly,  more  than 
double  interest  is  paid.     With  investments  or  temporary  loans 
inside  this  limit,  a  different  rule  obtains.     The  rates  of  inter- 
est paid  are  still  graded  with  little  real  appreciation  of  the 
degrees  of  risk  taken  ;  the  sums  obtained  as  insurance  can  not 


228  POLITICAL   ECONOMY. 

be  assumed  to  be  proportioned  to  the  hazard  ;  yet  it  is  gen- 
erally possible  for  an  investor  or  lender  to  say,  this  is  more 
safe  than  that  :  the  adverse  chances  here  are  few  and  small  ; 
are  many  and  great  there. 

But  there  is  a  more  marked  difference  between  extra-haz- 
ardous and  ordinary  risks  in  the  loan  of  capital.  With  the  former, 
the  rates  obtained  are,  as  a  whole,  taking  all  classes  of  invest- 
ors or  lenders  together,  below  the  actuarial  value  of  the  risks 
taken,  and  such  loans  and  investments,  in  spite  of  the  acute- 
ness  of  the  professional  money-lending  class,  result,  as  a  body, 
in  loss.  With  ordinary  risks,  the  rates  of  interest  are,  on  an 
average,  above  their  true  value,  as  estimated  from  the  basis  of 
bottom  mortgages  and  government  loans. 

For  example,  in  England,  a  few  years  ago,  the  return  from 
capital  invested  in  government  bonds  was  about  3.8  per  cent.; 
while  the  savings  banks  realized  on  their  investments,  which 
may  be  assumed  to  have  been  made  in  a  conservative  spirit, 
4£ per  cent.,  and  the  average  return  to  investors  in  railway 
stocks  was  5  per  cent.  Now,  here  is  an  undeniable  case  of 
disproportion.  Any  shrewd  and  sensible  man,  selling  £100,000 
of  consols,  investing  the  proceeds  in  the  shares  of  ten  repu- 
table railways,  and  compounding  through  a  term  of  years  the 
•extra  1T/]0  per  cent.,  per  annum,  would  create  a  fund  far  more 
than  sufficient  to  offset  any  losses  he  might  sustain  in  an  in- 
dividual case.  This  disproportion  is  due  first,  to  the  estimation, 
higher  than  an  actuarial  value,  placed  by  large  classes  of  invest- 
ors upon  the  feeling  of  security,  the  absence  of  all  apprehensions 
and  occasional  alarms,  and,  secondly,  to  the  favor  extended 
by  the  courts  to  the  investment  of  trust  funds  in  government 
bonds. 

298.  Differing  Bates  of  Interest  in  the  Same  Market. — 
We  have  laid  down  the  proposition  (par.  132)  that  in  one 
market,  at  one  time,  there  can  be  but  one  price  for  equal  por- 
tions of  the  same  commodity.  The  plain  facts  of  interest 
«eem  to  controvert  this  proposition.  In  the  same  market,  at 
the  same  moment,  the  price  paid  for  the  use  of  capital  may 
range  from  three  per  cent,  upwards,  to  five,  to  ten,  to  twenty. 
Is  this  because  between  the  portions  of  capital  so  loaned  an 


DIFFERING  RATES  OF  INTEREST.  229 

economic  difference  exists,  which  creates  a  preference  for  one 
over  the  other,  as  when  several  different  grades  of  flour  are 
sold  at  several  distinct  prices  ?  No,  the  capital  loaned  may 
be,  in  all  economic  respects,  uniform.  A  man  having  $30,000 
on  deposit  in  a  bank,  may,  on  the  same  day,  buy  $10,000 
worth  of  "  governments  "  which  pay  four  per  cent.,  invest  in 
"  railways  "  paying  six  per  cent,  dividends,  to  the  same  amount ; 
and  loan  the  remainder  at  ten  per  cent,  on  personal  security. 
Manifestly,  between  the  three  portions  of  capital  loaned  or 
invested,  no  economic  differences  existed. 

To  what,  then,  is  the  phenomenon  noted  due  ?  In  part  to 
the  cause  discussed  under  the  last  head — the  insurance  of 
the  principal  sum  lent.  Twenty  years  ago  there  were  on  the 
stock  market,  in  Lombard  Street,  three  kinds  of  government 
securities  :  English  consols,  bringing,  then,  three  and  a  quar- 
ter per  cent,  interest  on  the  investment  ;  Russian  bonds  bring- 
ing five  and  a  quarter  per  cent.,  and  Turkish  bonds  bringing 
ten  and  a  half  per  cent.  Every  day  large  amounts  of  these 
bonds  were  bought  by  Englishmen.  Doubtless,  some  pur- 
chasers bought  portions  of  each  kind  of  securities. 

Inasmuch  as  the  possibility  of  the  English  government 
becoming  bankrupt,  or  tending  to  repudiation,  is  never  admit- 
ted by  an  Englishman,  the  dividends  received  by  holders  of 
the  "  consols  "  constituted  pure  interest,  the  reward  of  absti- 
nence. The  added  two  per  cent,  obtained  from  the  Russian 
bonds  represented  the  value,  as  viewed  by  the  purchaser,  of 
the  insurance  of  his  capital  against  the  risk  of  loss  attendant 
on  loaning  it  to  the  government  of  a  people,  possessing  great 
natural  resources,  indeed,  and  bound  together  by  a  strong  na- 
tional feeling,  but  rude  in  manner,  primitive  in  industry,  with 
their  political  questions  largely  unsolved,  and  having  points  of 
possible  collision  with  England.  But  while  the  Englishman  de- 
manded five  and  a  quarter  per  cent,  per  annum  from  the  Rus- 
sian government,  as  the  consideration  for  his  loan,  he  exacted 
just  twice  that  consideration  from  the  Turkish  government, 
though  a  government  bound  to  Great  Britain  by  the  strongest 
ties  of  self-interest,  because  both  the  resources  and  the  good 
faith  of  the  Turkish  government  were  reasonably  suspected, 


230 


POLITICAL  ECONOMY. 


find   its  existence  was  dependent   on   support  from   foreign 
powers. 

299.  Imperfect  Competition  in  the   Money   Market.— 
We  have  in  the  foregoing  paragraph  used  the  expression,  "  as 
viewed  by  the  purchaser."     Hereby  is  indicated  a  considera- 
tion, which,  while  it  is  of  importance  in  any  market,  is  of 
especial  importance  in  the  market  where  capital  is  loaned,  the 
so-called  money-market.     In  quoting  Prof.  Jevons'  statement 
of  the  reason,  why,  in  the  same  market,  at  the  same  moment, 
all  equal  portions  of  a  perfectly  homogeneous  commodity  must 
bring  the  same  price,  we  added  that  this  proposition  assumed 
perfect  competition,  all  the  conditions  of  a  good  market  being 
fully  realized.     Now,  perfect  competition  only   exists  where 
there  is  ample  and  accurate  information.    In  bargains  relating 
to  the  use  of  capital,  so  little  is  known  by  the  parties  respect- 
ing the  supply  of  and  the  demand  for  capital,  especially  where 
usury  laws  drive  borrowers  and  lenders  to  shifts  and  evasions  ; 
BO  much  more  are  men  disposed  to  conceal  the  fact  and  the 
extent  of  their  borrowing  than  of  their  buying  ;  so  much  does 
the  repayment  of  the  principal  depend,  in  spite  of  law,  upon 
the  good  faith  of  the  borrower,  that  the  market  for  the  loan 
of  capital  can  rarely  be  called  a  good  market. 

All  bargains  in  the  "  money  market,"  as  the  market  for  the 
loan  of  capital  is  popularly  called,  take  place  necessarily  upon 
information  imperfect  at  the  best,  often  of  a  private  and  con- 
fidential nature  :  hence  it  frequently  happens  that,  in  the  same 
market,  at  the  same  moment,  loans,  upon  equally  good  secur- 
ity, are  made  at  different  rates  ;  while  it  is  not  at  all  unlikely 
to  occur,  that,  of  two  loans  of  unequal  value,  as  to  security, 
the  more  hazardous  may  be  made  at  the  lower  rate  of  interest. 

300.  Differing  Bates  of  Interest  in  Different  Markets.— Of 
course,  all  that  has  been  said  of  differing  rates  of  interest  in 
the  same  market  holds  good  of  different  markets  ;  but,  wholly 
in  addition  of  the  causes  which  produce  those  differences,  is 
reason  found  for  different  rates  in  distinct  markets.     Thus  it 
is  notorious  that,  for  long  terms  of  years,  the  loan  of  capital 
could  be  obtained,  upon  what  was  locally  regarded  as  approved 
security,  for  4  per  cent,  in  London  as  freely  as  for  6  cent,  ip 


EMIGRATION   OF  CAPITAL.  231 

New  York,  or  8  per  cent,  in  Chicago,  or  12  per  cent,  in  Iowa, 
or  Kansas. 

Whence  these  differences  ?  In  some  degree,  doubtless,  these 
successive  additions  of  interest,  as  capital  passed  westward, 
were  of  the  nature  of  insurance  on  the  principal  sum  lent.  In 
each  case,  the  security  might  be  as  good  as  could  ordinarily  be 
obtained  in  that  community.  Security,  however,  is  a  relative 
term;  what  would  be  deemed  ample  security  in  one  place  would 
not  pass  the  scrutiny  of  lenders  in  another.  The  older  the  country 
the  greater,  other  things  equal,  the  permanence  of  economic  rela- 
tions ;  the  more  does  industry  settle  down  within  traditional 
limits,  and  acquire  a  definite  and  calculable  rate  of  increase  ; 
the  higher  the  value  assigned  to  commercial  reputation,  the 
more  carefully  are  the  men  selected  who  are  to  control  the 
agencies  of  production  and  trade,  the  fewer  the  chances  of 
revolutionary  changes  in  business. 

301.  Disinclination  of  Capital  to  Emigrate. — But  not  all, 
or  even  the  greater  part  of  the  differences  which  have  been 
noted,  are  due  to  this  cause.  It  is  the  disinclination  of  capital 
to  emigrate,  which  allows  such  wide  differences  in  the  local 
rates  of  interest.  This  disinclination  is  due  to  various  causes. 
In  part,  it  is  the  continuing  effect  of  old  laws,  now  generally 
abrogated,  discriminating  against  aliens.  In  part,  it  is  due 
to  the  suspicion  that  strangers  may  not  be  fairly  dealt  with  by 
courts  and  by  officers  of  the  law,  in  case  of  seizures  or  fore- 
closures. In  part,  it  is  due  to  the  apprehension  of  the  effect 
of  international  hostilities,  which  cause  a  suspension  of  inter- 
est-payments, if  not  forfeiture  of  the  principal.  In  part,  it  is 
due  to  the  fact  that  investments  made  at  a  distance  must  gen- 
erally be  made  through  an  agent,  upon  whose  good  faith 
or  sound  judgment  may  depend  the  fate  of  the  principal 
invested. 

While  these  and  other  causes  may  operate,  singly  or  in  con- 
junction, to  create  local  differences  of  interest,  the  main  cause 
of  such  differences  is  found  in  the  inertia  of  the  owners  of  capi- 
tal, making  them  ready  to  accept  lower  rates  upon  the  spot 
than  could  perhaps  be  obtained  with  no  less  safety,  through 
inquiry  and  effort  at  a  distance,  and,  secondly,  in  the  necessary 


232  POLITICAL  ECONOMY. 

lack  of  information  as  to  prevailing    rates    of  interest   and 
existing  degrees  of  security  for  the  principal. 

I  remember  to  have  read  somewhere  an  estimate  by  an 
economist  of  reputation,  fixing  this  "  disinclination  of  capital 
to  emigrate "  at  two  per  cent.  It,  is  doubtful,  however, 
whether  the  matter  is  subject  to  any  such  form  of  statement. 
The  disinclination  to  invest  capital  abroad  must  differ  among 
men  of  different  races  ;  it  must  differ  with  differing  condi- 
tions respecting  the  communication  of  news,  and  respecting 
international  relations.  Indeed,  it  must  differ  widely  with 
differing  moods  of  the  public  mind.  At  times,  it  may  disap- 
pear altogether  under  the  excitement  of  speculative  mania, 
as  in  the  days  of  the  South  Sea  Bubble,  and  in  the  year  pre- 
ceding the  English  crisis  of  1825.  It  sometimes  seems  to 
be  the  case  that  loans  and  investments  are  made  abroad  more 
freely  than  at  home,  probably  because  it  is  less  easy  to  detect 
the  fallacy  of  schemes  bearing  foreign  names,  and  relating  to 
distant  lands. 


CHAPTER  IV. 

PROFITS. 

302.  Definition  of  Profits. — We  have  now  seen  two  shares 
cut  off  the  product   of   industry  —  rent   and   interest  ;   two 
claimants  satisfied — the  landlord  and  the  capitalist. 

We  now  come  to  inquire  respecting  the  share  of  the 
Employer,  who  organizes  and  conducts  production,  deciding 
what  shall  be  produced  ;  in  what  amounts,  of  what  varieties, 
materials  and  patterns  ;  and  to  what  persons,  at  what  prices, 
and  on  what  terms  of  payment,  the  products  shall  be  sold. 

303.  The  Entrepreneur  or  Employing  Class.  —  We  have 
seen  that  in  a  primitive  state  of    industrial  society  the  em- 
ployer does   not    appear.      When,    however,    the    forms    of 
production  become  many  and  complex;  when  the  hand-tool  is 
replaced   by  the   machine  ;  when  many  persons,  of   various 
degrees  of  skill,  strength  and  intelligence,  are  united  in  the 


THE   EMPLOYING  FUNCTION.  233 

same  industrial  operation  ;  when  the  materials  consumed  are 
gathered  from  distant  lands,  and  the  products,  in  turn, 
are  disti'ibuted  widely  to  consumers  not  known  to  the 
producer,  and  are  sold  largely  upon  credit ;  when,  moreover, 
a  few  simple,  standard  styles  give  way  to  ever-varying  fash- 
ions, in  material,  in  form,  in  color  :  in  such  a  state,  the  em- 
ployer, the  master,  the  entrepreneur,  becomes  a  necessity  of 
the  situation.  He  performs  a  function  which  is  indispens- 
able to  a  large  and  varied  production,  and  for  so  doing 
receives  a  remuneration  which  we  call  profits. 

304.  Unfortunately,  as  it  seems  to  me,  the  entrepreneur  or 
employing  function  has  not  been  adequately  treated,  if,  indeed, 
it  has  been  in  the  smallest  degree  recognized.  English  and 
American  economists,  in  general,  have  chosen  to  regard  the 
capitalist  as  the  employer  of  labor,  that  is,  as  employing 
labor  merely  because  of  the  possession  of  capital,  and  to  the 
extent  only  to  which  he  possesses  capital.  We  have  just  now 
said  that,  in  an  early  stage  of  industrial  society,  the  employer 
does  not  appear  in  distinct  shape.  The  possession  of  capital 
there  constitutes  a  sufficient  qualification  for  the  employment 
of  labor. 

In  the  later  stages  of  industrial  development,  the  mere 
possession  of  capital  no  longer  constitutes  the  sole,  or  even 
the  main  qualification  for  employing  labor.  The  laborer  no 
longer  looks  to  the  employer  to  furnish  merely  food  and  tools 
and  materials,  but  to  furnish,  also,  technical  skill,  commercial 
knowledge  and  powers  of  administration  ;  to  assume  responsi- 
bilities and  provide  against  contingencies  ;  to  shape  and  direct 
production  and  to  organize  and  control  the  industrial  machin- 
ery. So  important  and  difficult  are  these  duties,  so  rare  are 
the  abilities  they  demand,  that  he  who  can  discharge  these 
will  generally  find  the  capital  required.  If  he  be  the  man  to 
conduct  business,*  food,  tools,  and  materials  will  not,  under 
our  modern  system  of  credit,  long  be  wanting  to  him.  On  the 

*  "  Many  employers  of  labor,  in  some  parts  of  England  more  than  half, 
have  risen  from  the  ranks  of  labor.  Every  artisan  who  has  exceptional 
natural  abilities  has  a  chance  of  raising  himself  to  a  post  of  command." 
— Marshall's  "  Economics  of  Industry." 


-234  POLITICAL  ECONOMY. 

other  hand,  without  these  higher  qualifications  the  mere  pos- 
sessor  of  capital  will  employ  labor  at  the  risk,  almost  the 
certainty,  of  total  or  partial  loss. 

The  employer,  the  entrepreneur,  thus  rises  to  be  the  master 
of  the  situation.  It  is  no  longer  true  that  a  man  becomes  the 
employer  of  labor  because  he  is  a  capitalist.  Men  command 
capital  because  they  have  the  qualifications  to  employ  labor. 
To  men  so  endowed,  capital  and  labor  alike  resort,  for  the 
opportunity  to  perform  their  several  functions  and  to  entitle 
themselves  to  share  in  the  product  of  industry.  By  this  is 
not  meant  that  the  employer  is  not,  in  any  case,  or  to  any 
extent,  a  capitalist,  but  that  he  is  not  an  employer  to  the 
extent  only  to  which  he  is  a  capitalist,  nor  is  he  an  employer 
at  all  because  he  is  a  capitalist. 

305.  Use  of  the  word  Profits  by  English  and  American 
Economists — As  the  English  and  American  economists  gen- 
erally leave  the  entrepreneur  out  of  their  discussion  of  produc- 
tion, so  they  leave  out  of  view  the  share  of  the  entrepreneur 
in  treating  of  the  distribution  of  wealth.  "  Profits  "  come  to 
mean  only  the  remuneration  for  the  use  of  capital,  what  we 
call  distinctively  interest  ;  or,  if  it  be  recognized  that  the  man 
who  organizes  and  conducts  industrial  operations  receives 
something  over  and  above  the  mere  return  upon  that  portion 
of  the  capital  employed  by  him  which  he  owns  in  his  own 
right,  that  something  is  disparaged  by  being  termed  "  the 
wages  of  supervision  and  management." 

Now  it  is  fundamental  in  my  theory  of  distribution  that  the 
entrepreneur  class,  the  employers  of  labor,  receive  a  share  of 
the  product  of  industry  which  is  so  important,  through  its 
amount,  that  it  can  not  possibly  be  omitted  from  consideration, 
and  so  widely  different  in  the  principles  by  which  it  is  gov- 
erned, that  the  term  wages  can  not  be  applied  thereto  without 
inducing  a  wholly  unnecessary  and  mischievous  confusion  of 
ideas,  leading  directly  to  false  results. 

To  the  entrepreneur's  share  of  the  product  of  industry  I 
shall  strictly  apply  the  term  profits.  This  use  of  the  term,  in 
my  judgment,  tends  to  promote  clearer  conceptions  regarding 
the  distribution  of  wealth  in  the  modern  industrial  state. 


PROFITS  AKIN   TO  RENT.  235 

306.  Profits  a  Species  of  the  Same  Genus  as  Bent. — In 
my  opinion,  profits  thus  defined  bear  a  strong  resemblance  to 
rent.  In  this  view  I  follow  Archbishop  Whately,  who,  in  the 
appendix  to  his  treatise  on  Logic,  declares  that  the  rent  of 
land  is  only  a  species  of  an  extensive  genus,  although,  as  he 
complains,  the  English  economists  have  treated  it  as  constitu- 
ting a  genus  by  itself,  and  have  either  omitted  its  cognate 
species,  or  have  included  them  under  genera  to  which  they  do 
not  properly  belong.  If  this  view  is  correct,  the  principles 
deduced  therefrom  will  be  of  very  great  consequence,  not 
only  to  political  economy,  but  to  social  philosophy.  Let  us, 
therefore,  state  again  the  essential  differences  between  Rent 
and  Interest. 

1st.  A  portion  of  the  land  cultivated  for  the  supply  of  any 
given  market,  bears  no  rent  ;  this  we  call  the  no-rent  land. 
The  rent  paid  for  any  piece  of  land  is  exactfy  measured,  in 
theory,  by  its  excess  of  advantages  in  production,  over  the 
advantages  in  production  pertaining  to  the  no-rent  land.  On 
the  other  hand,  there  is  not  any  no-interest  capital.  It  is  true 
that  a  person  lending  capital  may  not  only  not  obtain,  in  the 
result,  any  interest  for  its  use,  but  may  even  lose  the  princi- 
pal ;  but  this  will  be  due  to  violence  or  fraud,  to  flood  or  fire 
or  stress  of  weather,  or,  else,  to  the  unsuspected  incompetency 
of  the  borrower  to  conduct  biisiness,  all  of  which  we  may  sum 
up  in  the  word  accident.  There  is  no  reason  why  such  acci- 
dents should  befall  one  portion  of  capital  and  not  another, 
whereas  there  is  a  reason,  in  the  nature  of  the  case,  why  one 
piece  of  land  should  bear  a  rent  and  another  not ;  why  one 
piece  should  bear  a  high  and  another  a  low  rent.  Theoreti- 
cally all  capital  bears  interest  ;  and,  theoretically  also,  all 
capital  bears  the  same  rate  of  interest,  exceptions  being  either, 
first,  apparent  only,  as  when  an  additional  per  cent,  is  charged, 
not  as  interest  proper,  but  for  the  insurance  of  the  principal, 
or  secondly,  those  arising  from  the  disinclination  of  capital  to 
emigrate,  from  the  ignorance  or  inertia  of  lenders  and  bor- 
rowers, or  from  the  force  of  laws  interfering  with  contracts 
•of  loan. 

2nd.     It  follows  that  interest  forms  a  part  of  the  price  of 


236  POLITICAL  ECONOMY, 

all  products,  but  that  rent  forms  no  part  of  the  price  of  agri- 
cultural produce  (for  the  demonstration  of  this  theorem,  see 
par.  262),  and  that  the  amount  received  by  the  landlord,  as 
rent,  is  not  paid  either  by  the  agricultural  laborer,  or  by  the 
consumer  of  the  produce. 

307.  Profits  Governed  by  the  same  Law  as  Bent. — 
Having  restated  the  essential  distinction  between  interest  and 
rent,  I  shall  now  undertake  to  show  that  profits,  the  remunera- 
tion of  the  entrepreneur  or  employer,  partake  largely  of  the  na-' 
ture  of  rent,  being  a  species  of  the  same  genus.  So  far  as  this 
is  the  case,  profits  do  not  form  a  part  of  the  price  of  the  prod- 
ucts of  industry,  and  do  not  cause  any  diminution  of  the 
wages  of  labor. 

The  successful  conduct  of  business,  under  free  and  active 
competition,  is  due  to  exceptional  abilities  or  to  exceptional 
opportunities.  Whether  due  to  exceptional  abilities  or  to 
exceptional  opportunities,  my  proposition  could  be  equally 
well  established,  just  as  it  makes  no  difference  in  the  theory 
of  rent  whether  a  piece  of  land  owes  its  superior  advantage* 
for  the  purposes  of  cultivation  to  higher  natural  fertility,  or 
to  closer  proximity  to  the  market  to  be  supplied.  Yet  it  can 
not  be  a  matter  of  indifference  to  social  philosophy,  whether 
the  power  to  command  profits  be  due  to  exceptional  abili- 
ties or  to  exceptional  opportunities  ;  and  I  may,  therefore,  be 
•pardoned  for  pausing  to  point  out  that  the  former  are  far 
more  efficient  than  the  latter,  in  securing  profits. 

To  justify  this  assertion  it  will  be  enough  to  refer  to  the 
well-known  fact  that  a  great  majority  of  all  business  houses 
which  have  achieved  notable  success  have  been  founded  by 
men  who  owed  almost  nothing  to  opportunity.  On  the  other 
hand,  nothing  is  more  familiar  than  the  spectacle  of  gi'eat 
houses,  deeply  founded,  which  have  enjoyed  high  prestige, 
wide  connections  and  large  accumulated  capital,  dwindling 
away  little  by  little,  if  not  brought  abruptly  to  their  downfall, 
under  the  successors  of  the  original  founder,  simply  because 
the  management  which  had  been  strong  and  brave  and  wise, 
became  commonplace,  purposeless,  timid  and  weak.  All  this 
is  so  familiar  that  I  do  not  fear  that  any  American,  at  least, 


THE   ORIGIN   OF  PROFITS.  237 

will  question  the  assertion  that  exceptional  abilities  have  far 
more  to  do  with  the  successful  conduct  of  business,  than  excep- 
tional opportunities. 

Inasmuch  as  it  would  make  no  difference  whether  profits 
were  due  to  exceptional  abilities  or  to  exceptional  opportuni- 
ties, while  the  former  are,  in  fact,  much  the  more  important 
factor  in  the  successful  conduct  of  business,  I  shall,  hereafter, 
for  convenience  and  simplicity,  speak  of  profits  as  due  to  ex- 
ceptional abilities,  just  as  in  discussing  the  question  of  the  use 
of  the  land,  we  speak  of  rent  as  due  to  differences  in  fertility, 
assuming,  for  convenience  of  illustration,  all  the  fields  under 
view  to  be  in  equal  proximity  to  the  market. 

308.  A  Theoretical  No-Profits  Stage  of  Production-— If 
the  number  of  men  of  exceptional  abilities  were  sufficient  or 
more  than  sufficient  to  do  all  the  business  that  required  to  be 
done,  of  all  sorts  and  in  all  places  ;  if  (2)  these"  men,  however 
much  surpassing  all  other  members  of  the  industrial  society, 
were  among  themselves  equal  in  all  respects  which  concern 
the  conduct  of  business  ;  and  if  (3)  this  class,  so  constituted 
and  so  endowed,  were  distinguished  from  all  not  of  their  class 
so  clearly  and  conspicuously  that  no  one  having  these  exceptional 
abilities  should  fail  to  be  recognized,  and  no  one  lacking  such 
abilities  in  the  full  measure  should  esteem  himself  capable  of 
conducting  business,  or  be  so  esteemed,  for  the  purpose  of 
obtaining  credit,  we  should  have  a  situation  closely  analogous 
to  that  which  we  described(^ar.  255)in  the  case  of  a  community 
near  which  was  found  an  amount  of  good  land,  of  uniform 
quality,  adequate,  or  more  than  adequate,  to  raise  all  produce 
required  for  the  support  of  the  community. 

The  result  would  be,  either  that  this  class  would,  by  form- 
ing a  combination  and  scrupulously  adhering  to  its  terms  and 
its  spirit,  create  and  maintain  a  monopoly  price  for  their  ser- 
vices in  conducting  the  business  requiring  to  be  done,  which  is 
so  improbable  as  to  be  altogether  out  of  our  contemplation,  or 
they  would,  by  competing  among  themselves  for  the  amount 
of  business,  bring  down  its  rate  to  so  low  a  point  that  the 
remuneration  of  each  and  every  one  of  this  class  would  be  prac- 
tically equal  to  what  he  would  receive  if  employed  by  another. 


238  POLITICAL  ECONOMY. 

This,  which  we  might  call  the  "  no-profits  "  stage  of  industrial 
society,  corresponds  closely  to  the  "  no-rent "  stage  in  the 
cultivation  of  the  soil.  The  persons  remaining  in  the  conduct 
of  business  would  earn  their  necessary  subsistence,  but  no 
more.  Economically  it  would  make  no  difference  to  them 
whether  they  did  this,  as  employers  or  employed. 

309. — In  fact,  however,  the  qualifications  for  the  conduct 
of  business  are  not  equal  throughout  all  of  a  sufficiently  numer- 
ous class.  On  the  contrary,  the  range  of  ability  is  almost 
world-wide.  First,  we  have  those  rarely-gifted  persons  who, 
in  common  phrase,  seem  tb  turn  every  thing  they  touch  into 
gold  ;  whose  commercial  dealings  have  the  air  of  magic  ;  who 
have  such  insight  as  almost  to  seem  to  have  foresight  ;  who 
are  so  resolute  and  firm  in  temper  that  apprehension  and  alarms 
and  repeated  shocks  of  disaster  never  cause  them  to  relax 
their  hold  or  change  their  course  ;  who  have  such  command 
over  men  that  all  with  whom  they  have  to  do  acquire  vigor 
from  the  contact  and  work  for  them  as  they  would  not,  perhaps 
could  not,  work  for  others. 

Next  below,  though  far  below,  we  have  that  much  larger 
class  of  men  of  business,  of  a  high  order  of  talent,  though 
without  genius  or  any  thing  savoring  of  magic,  whose  unquali- 
fied success  is  easily  comprehended,  even  if  it  can  not  be 
imitated  :  men  of  natural  mastery,  sagacious,  prompt  and 
resolute. 

Then  we  have  the  men  who,  on  the  whole,  do  well,  or  pretty 
well,  in  business  :  men  who  enjoy  a  harmonious  union  of  all  the 
qualities  of  the  entrepreneur,  though  only  in  moderate  degree, 
or  in  whom  some  defect,  mental  or  moral,  impairs  a  higher  order 
of  abilities  ;  men  who  are  never  masters  of  their  fortunes,  are 
never  beyond  the  imminence  of  disaster,  and  yet,  by  care  and 
pains  and  diligence,  win  no  small  profits  from  their  business, 
and,  if  frugality  be  added  to  their  other  virtues,  accumulate 
in  time  large  estates. 

Lower  down  in  the  industrial  order  are  a  multitude  of  men 
who  are  found  in  the  control  of  business  enterprises  for  no 
good  reason  :  men  of  checkered  fortunes,  sometimes  doing  well, 
but  more  often  ill  ;  some  of  them,  perhaps,  filling  a  place  that 


THE  NO-PROFITS  EMPLOYER.  239 

would  not  otherwise  be  filled,  but,  more  commonly  in  business 
because  they  have  forced  themselves  into  it  under  a  mistaken 
idea  of  their  own  abilities,  perhaps  encouraged  by  the  partial- 
ity of  friends  who  have  been  willing  to  place  in  their  hands  the 
agencies  of  production,  or  intrust  them  with  commercial  or 
banking  capital.  The  industrial  careers  of  these  men  are  not 
peculiarly  happy,  though  the  degree  in  which  they  suffer  from 
the  constant  imminence  of  loss,  perhaps  of  bankruptcy,  is  very 
much  a  matter  of  temperament.  Some  take  it  extremely  hard, 
and  when  they  fall  make  no  effort  to  rise  again  ;  others  are 
irrepressible  as  Harlequin,  jumping  up,  alert  as  ever,  after 
being  apparently  hanged,  drawn  and  quartered  by  the  common 
executioner. 

310.  The  No-Profits  Class  of  Employers. — Now,  in  my 
view  of  the  question  of  profits,  we  find,  in  the  lower  stratum 
of  the  industrial  order  thus  rudely  and  hastily  sketched,  a 
"  no-profits "  class   of   employers.     Notwithstanding    all   the 
magnificent  premiums  of  business  success,  the  men  of  real 
business  power  are  not  so  many  but  that  no  small  part  of  the 
posts  of  industry  and  trade  are  filled  by  men  inadequately 
qualified,  and  who,  consequently,  have  a  very  checkered  career 
and  realize  for  themselves,  taking  their  whole  lives  together, 
a  meager  compensation,  so  meager  that,  for  purposes  of  scien- 
tific reasoning,  we  may  treat  it  as  constituting  no  profits  at 
all.     Live  they  do,  partly  by  legitimate  toll  upon  the  business 
that  passes  through  their  hands,  partly  at  the  cost  of  their 
creditors,  with  whom  they  make  fi-equent  compositions,  partly 
at  the  expense  of  friends,  or  by  the  sacrifice  of   inherited 
means.     This  bare  subsistence,  obtained  through  so  much  of 
hard  work,  of  anxiety,  and  often  of  humiliation,  we  regard  as 
that  minimum  which,  in  economics,  we  can  treat  as  nil.    From 
this  low  point  upwards,  we  measure  profits. 

311.  Profits  do  not  form  a  part  of  the  Price  of  Manufac- 
tured Products. — If  this  view  of  the  employing  class  be  cor- 
rectly taken,  it  appears  that,  under  perfect  competition,  that 
is,  where  the  conditions  of  a  good  market  are  supplied,  manu- 
facturing profits,  for  instance,  are  not  obtained  through  any 
deduction  from  the  wages  of  mechanical  labor  ;  and,  secondly, 


240  POLITICAL  ECONOMY. 

manufacturing  profits  do  not  constitute  a  part  of  the  price  of 
manufactured  goods.  All  profits  are  drawn  from  a  body  of 
wealth  which  is  created  *  by  the  exceptional  abilities  (or  op- 
portunities) of  those  employers  who  receive  profits,  measured 
from  the  level  of  those  employers  who  receive  no  profits,  just 
as  all  rents  are  drawn  from  a  body  of  wealth,  which  is  created 
by  the  exceptional  fertility  (or  facilities  for  transportation  of 
produce)  of  the  rent-lands,  measured  from  the  level  of  the  no- 
rent  lands. 

The  price  of  manufactured  goods  of  any  particular  descrip- 
tion is  determined  by  the  cost  of  production  of  that  portion 
of  the  supply  which  is  produced  at  the  greatest  disadvantage 
(par.  137).  If  the  demand  for  such  goods  is  so  great  as  to 
require  a  certain  amount  to  be  produced  under  the  manage- 
ment and  control  of  persons  whose  efficiency  in  organizing 
and  supervising  the  forces  of  labor  and  capital  is  small,  the 
cost  of  production  of  that  portion  of  the  stock  will  be  large, 
and  the  price  will  be  correspondingly  high,  yet,  high  as  it  is, 
it  will  not  be  high  enough  to  yield  to  the  employers  of  this 
grade  any  more  than  that  scant  and  difficult  subsistence  which 
we  have  taken  as  the  no-pi'ofits  line. 

The  price  at  which  these  goods  are  to  be  sold,  however, 
will  determine  the  price  of  the  whole  supply,  since,  in  any  one 
market,  at  any  one  time,  there  is  but  one  price  for  different 
portions  of  the  same  commodity.  Hence,  whatever  the  cost 
of  production  of  those  portions  of  the  supply  which  are  pro- 
duced by  employers  of  a  higher  industrial  grade,  they  will 
command  the  same  price  as  those  portions  which  are  produced 
at  the  greatest  disadvantage.  The  difference,  so  measured, 
will  go  as  profits  to  each  individual  employer,  according  to 
his  own  success  in  production. 

312.  Profits  are  not  Subtracted  from  Wages.— Do  profits, 
then,  come  out  of  wages  ?  Not  at  all.  The  employers  of  the 
lowest  industrial  grade — the  no-profits  employers,  as  we  have 

*Prof.  Alfred  Marshall  says:  "The  earnings  of  management  of  a 
manufacturer  represent  the  value  of  the  addition  which  his  work  makes 
to  the  total  produce  of  capital  and  industry." 


THE   ORIGIN  OF  PROFITS.  241 

called  them — must  pay  wages  sufficient  to  hire  laborers  to 
work  under  their  direction.  These  wages  constitute  an  essen- 
tial part  of  the  cost,  to  the  employer,  of  the  production  of  the 
goods.  The  fact  that  these  wages  are  so  high  is  the  reason 
why  these  employers  are  unable  (their  skill  and  power  in  organ- 
izing and  energizing  labor  and  capital  being  no  greater  than 
they  are),  to  realize  any  profits  for  themselves. 

The  employers  of  the  higher  industrial  grades  will  pay  the 
same  wages  to  their  laborers.  Why,  in  equity  or  in  econo- 
mics, should  a  laborer  who  works  for  a  strong,  prudent  and 
skillful  master,  receive  higher  wages  than  one  whose  fortune 
it  is  to  work  for  a  vacillating,  weak  or  reckless  employer. 
The  one  laborer  is  as  efficient  as  the  other,  and  works  as  hard. 
The  difference  in  production,  which,  in  the  one  case  allows  rent 
to  be  paid,  and  in  the  other  enables  the  employer  to  secure  a 
profit,  is  due  to  no  superiority  in  the  quality  of  the  labor  or 
the  capital  employed,  over  that  of  the  labor  and  the  capital  em- 
ployed where  no  rents  or  no  profits  are  realized.  In  the  one 
case  it  is  due  to  the  superior  fertility  of  the  land,  or  its  greater 
facilities  for  the  transportation  of  produce  ;  in  the  other,  to 
the  superior  abilities  or  opportunities  of  him  who  conducts 
industry. 

In  the  latter  case,  the  employer,  paying  wages  at  the  same 
rate  to  his  laborers,  and  interest,  at  the  same  rate,  to  the  capi- 
talist, for  so  much  as  he  has  to  borrow,  and  selling  his  goods, 
so  far  as  they  are  of  equal  quality,  at  the  same  price  as  the 
employer  who  makes  no  profits,  is  yet  able  to  accumulate  a  clear 
surplus  after  all  obligations  are  discharged,  which  surplus  is 
called  profits.  This  is  effected  by  his  careful  study  of  the  sources 
of  his  materials  ;  by  his  comprehension  of  the  demands  of  the 
market ;  by  his  steadiness  and  self-control  in  the  presence  of 
temptations  to  extravagance  or  wild  ventures  ;  by  his  organiz- 
ing force  and  administrative  ability  ;  by  his  energy,  economy 
and  prudence. 

313.  The  No-Profits  Employer.— A  failure  to  discern  the 
true  relations  of  profits  to  wages  has  led  to  a  mistaken  appre- 
ciation of  the  interests  of  the  community,  and  especially 
of  the  laboring  classes,  regarding  the  employers  of  labor. 


242  POLITICAL  ECONOMY. 

While  the  large  profits  of  the  successful  employer  have  been 
the  subject  of  much  jealousy,  and  almost  uniformly  excite  in 
the  minds  of  the  unthinking  the  sense  of  personal  wrong,  there 
is  an  entire  lack  of  jealousy  exhibited  towards  the  imsuccessf  ul 
man  of  business,  who  often  receives  a  great  deal  of  sympathy 
from  the  laboring  class. 

So  far  as  the  sympathy  extended  towards  the  unsuccessful 
man  of  business  is  of  a  personal  nature,  flowing  from  a  kindly 
disposition  towards  the  unfortunate,  it  is,  of  course,  very  amia- 
ble. But  there  is  reason  to  believe  that  this  sentiment  is  not 
wholly  of  a  good  origin,  but  is  quite  as  largely  produced  by  a 
misapprehension  of  economic  relations.  The  laborers  appre- 
ciate, in  some  degree,  the  cares  under  which  the  unsuccessful 
employer  labors,  the  anxieties  from  which  he  suffers,  the 
humiliation  into  which  he  is  occasionally  plunged.  They 
know  he  has  a  pretty  poor  time  of  it  on  the  whole,  and  they 
are  not  envious  of  him.  On  the  contrary,  they  use  his  hard  lot 
to  sharpen  their  envy  of  the  man  who  reaps  large  profits  from 
the  conduct  of  business  and  the  employment  of  labor.  They 
compare  the  rich  rewards  of  the  one,  who,  perhaps,  in  time, 
becomes  worth  his  millions,  with  the  meager  recompense  of 
the  other,  who,  at  the  end  of  a  long  life  of  labor,  has  little  to 
show  for  it  all  ;  and  the  comparison  tends  to  heighten  the 
feeling  of  loss  and  of  wrong  with  which  the  gains  of  the 
former  are  contemplated. 

If,  however,  we  have  rightly  indicated  the  source  of  profits, 
not  only  is  the  unsuccessful  employer  deserving  of  no  special 
economic  sympathy,  but  his  conduct  of  business,  his  control 
of  labor-force  and  capital-force  is  at  a  great  cost  to  the  labor- 
ing class,  as  forming  a  part  of  the  general  community. 

We  saw  that  rents  were  measured  upward  from  the  produc- 
tive level  of  no-rent  land.  If,  therefore,  that  level  is  lowered, 
rents  are,  (par.  257)  by  that  fact  raised.  Similarly,  profits 
are  measured  upwards  from  the  level  of  the  no-profits  class  of 
employers  ;  and  any  cause  which  brings  incomeptent  persons 
into  the  conduct  of  business,  or  keeps  them  there  against  the 
natural  tendency  of  trade  to  throw  them  out,  increases  the 
profits  of  the  successful  employers,  as  a  class,  by  enhancing 


INCOMPETENT  EMPLOYERS.  24$ 

the  cost  of  production  and,  consequently,  the  price  of  that 
portion  of  the  supply  which  is  produced  at  the  greatest  dis- 
advantage. This  enhancement  of  price  is  at  the  expense  of 
all  who  consume  the  goods  so  produced  ;  the  laboring  class 
equally  with  others,  in  theory  ;  probably  iii  fact  more  than 
any  other,  on  account  of  their  limited  ability  to  look  out  for 
their  own  interests  in  retail  trade. 

314.  What  Causes  Help  to  Swell  the  Proportion  of  In- 
competent Employers  of  Labor?— Shilly-shally  laws  relating 
to  insolvency  do  this  ;  bad  money  does  this  ;  truck  does  this  ; 
protection,  in  my  judgment,  does  this.     Each  of  these  causes 
enables  men  to  escape  the  consequences  of  incompetency,  and 
to  hang  miserably  on  to  business,  where  they  are  an   obstruc- 
tion and  a  nuisance.     Slavery,  in  like  manner,  enables  men  to 
control  labor  and  direct  production,  who  never  would  become, 
on  an  equal  scale,  the  employers  of  free  labor" ;  and  it  is  not 
more  to  the  inefficiency  of  the  slave  than  to  the  incompetency 
of  the  master,  that  the  unproductiveness  of  chattel  labor  is 
due. 

The  lower  the  industrial  quality  of  free  labor,  the  more 
ignorant  and  inert  the  individual  laborer,  the  lower  may  be  the 
quality  of  the  men  who  can  just  sustain  themselves  in  the 
position  of  employers.  Men  become  the  employers  of  cheap 
labor  who  would  never  become  the  employers  of  dear  labor, 
and  who  oxight  not  to  be  the  employers  of  any  sort  of  labor. 
The  more  active  becomes  the  competition  among  the  wages 
class,  the  more  prompt  their  resort  to  market,  the  more  per- 
sistent their  demand  for  every  possible  increase  of  remunera- 
tion, the  greater  will  be  the  pressure  brought  to  bear  upon 
such  employers  to  drop  out  of  the  place  into  which  they  have 
crowded  themselves  at  the  cost  of  the  general  community, 
and  where  they  have  been  able  to  maintain  themselves  only 
because  the  working  classes  have  failed,  through  ignorance  or 
inertia,  to  exact  their  full  terms. 

315.  Importance  of  this  View  of  Profits. — It    is    compe- 
tent to  any  person  to  dissent  from  the  viewr  of  the  origin  and 
measure  of  business  profits  I  have  presented  ;  but  it  can  not 
be  gainsaid  that,  if  that  view  be  accepted  as  correct,  we  have 


244  POLITICAL  ECONOMY. 

here  the  keystone  of  the  arch,  which  completes  the  structure 
and  binds  together  the  other  members  into  a  symmetrical  whole 
spanning  the  entire  field  of  distribution.  We  shall  not,  how- 
ever, be  able  to  appreciate  all  the  consequences  of  this  theory, 
until  we  have  carried  our  studies  through  the  subject  of  wages, 
the  remuneration  of  labor. 

316.  Getting  Bid  of  the  Employer.— In  the  department  of 
Production  we  described  the  function  of  the  entrepreneur,  or 
employer,  the  person  who,  hiring  labor  on  the  one  hand,  and 
borrowing  capital  on  the  other,  initiates  industrial  operations 
according  to  his  own  plans,  and  with  a  view  to  his  own  econo- 
mic benefit.     Coming  down  to  the  department  of  Distribution, 
we  have,  but  just  now,  inquired  how  the  contemplated  benefit 
is  secured  by  the  employer,  and  what  are  the  limits  of  that 
benefit,  which  we  term  profits. 

It  has  been  said,  in  the  course  of  this  discussion,  that  this 
benefit  obtained  by  the  employer,  his  profits,  has  been  the 
object  of  not  a  little  jealousy  and  envy  on  the  part  of  the  labor- 
ers and  capitalists  to  whom  he  has  paid  wages  or  interest. 
Those  wages  and  that  interest  the  recipients  would  be  glad  to 
see  increased  by  some  addition  derived  from  the  source  from 
which  the  employer  obtains  his  profits.  This  could  only  be 
done  by  the  laborers  and  the  capitalists  combining  to  perform 
the  employer's  woi'k  in  production,  and  thereby  becoming 
entitled,  or  perhaps  we  had  better  say  enabled,  to  claim  his 
share  of  the  product  in  distribution. 

317.  Co-operation. — Organized  and  systematic  efforts  to 
get  rid  of  the  entrepreneur  or  employer  have  not  been  un- 
known.    Among  the  many  schemes  for  largely  and  rapidly 
improving  the  condition  of  the  masses   of  the  people,  which 
had  their  birth  in  the  period  of  social  and  political  fermenta- 
tion which  we  call  the  Revolution  of  1848,  none  had  fairer 
promise  of  substantial  results  than  that  known  by  the  name 
•of  Co-operation. 

Generically,  co-opei-ation  is  a  term  of  wide  application,  and, 
in  its  use  in  political  economy,  may  express  the  union  of  indus- 
trial agents  in  production  upon  any  terms  and  under  any 
system  of  organization.  Since  the  period  referred  to,  how- 


WAGES,  245 

over,  the  term  has  come  to  have  a  limited  signification,  con- 
fined to  an  industrial  organization  from  which  the  entrepreneur 
is  excluded,  and  under  which  the  product  of  industry  is  again 
to  be  divided  into  three  principal  shares,  instead  of  four  as 
under  the  entrepreneur  system.  I  here  only  indicate  the  place 
which  co-operation  occupies  in  the  scheme  of  Distribution, 
postponing  the  discussion  of  the  scheme  to  Part  VI. 


CHAPTER  V. 

WAGES. 

318.  Definition  of  Wages. — We  have  seen  three  shares  cut 
off  the  product  of  industry.     Of  the  four  principal  parts*  into 
which  that  product  is  divided,  under  the  entrepreneur  organi- 
zation, as   existing   almost   universally   in   England,   and    as 
rapidly  extending  in  the  United  States,  on  the  continent  of 
Europe,  and  in  all  progressive  countries,  there  remains  but  one 
to  be  treated,  Wages,  the  remuneration  of  labor. 

Before  seeking  the  law  which  governs  wages,  two  distinc- 
tions require  to  be  drawn  very  clearly,  distinctions  which  the 
reader  will  need  to  hold  strongly  in  mind  through  the  whole 
course  of  our  future  discussion,  the  distinction,  viz.,  between 
real  and  nominal  wages,  and  that  between  the  real  and  the 
nominal  cost  of  labor. 

319.  Real  and  Nominal  Wages. — Real  wages  are  the  re- 
muneration of   the    laborer  as  reckoned   in  the  necessaries, 
comforts  and  luxuries  of  life. 

Real  wages  may  differ  widely,  even  when  nominal  wages 
are  of  the  same  amount,  by  reason  of  : 

(a)  Variations  in  the  purchase  power  of  money. 

(b)  Varieties  in  the  form  of  payment,  as  when  the  board  of 
the  laborer,  the  rent  of  a  cottage,  the  privilege  of  grazing  a 

*  Certain  minor  shares  in  distribution  will  be  treated  in  the  next  chap- 
ter. For  the  purposes  of  the  present  discussion  they  may  safely  be  dis- 
regarded. 


246  POLITICAL  ECONOMY. 

cow,  allowances  of  certain  quantities  of  food,  drink  or  fuel, 
the  right  to  take  flour  at  miller's  prices,  one  or  more  of  these, 
are  added  to  the  money  wages  of  the  laborer.  Such  forms  of 
payment  are  not  of  much  importance  throughout  the  United 
States,  generally,  at  the  present  time  ;  but  in  many  European 
countries  they  constitute  elements  which  can  not  be  over- 
looked in  discussing  the  question  of  comparative  wages.  In 
England,  a  series  of  acts  of  Parliament,  extending  over  four 
hundred  years,  have  successively  restricted  the  right  of  the 
employer  to  pay  wages  in  aught  but  the  coin  of  the  realm. 

(c)  The  greater  opportunities  in  some  avocations  than  in 
others  for  extra  earnings  by  the  laborer  himself  or  by  the 
members  of  his  family.  Thus,  Prof.  Senior  says  :  "  The  earn- 
ings of  the  wife  and  children  of  many  a  Manchester  weaver 
exceed  or  equal  those  of  himself.  Those  of  the  wife  and  chil- 
dren of  an  agricultural  laborer,  or  of  a  carpenter  or  coal- 
heaver,  are  generally  unimportant."  The  true  unit  in  the 
comparison  of  wages  is  evidently  the  family. 

320.  (d]  The  greater  regularity  of  employment  in  some 
avocations  than  others.  Varying  regularity  of  employment 
may  be  due  to  (1)  the  nature  of  the  individual  avocation,  (2) 
the  force  of  the  seasons,  (3)  social  causes,  (4)  industrial  causes, 
like  strikes,  panics,  and  so-called  "  hard  times." 

In  illustration  of  the  foregoing  causes,  we  have  the  widely 
varying  rates  of  agricultural  wages  from  one  season  to 
another,  being  often,  e.  g.,  more  than  twice  as  great  in  the 
third  as  in  the  first  quarter  of  the  year.  This  is  due  to  both 
of  the  first  two  causes  adduced.  It  is  not  alone  the  difference 
of  the  seasons  which  makes  agricultural  wages  so  irregular  ;  in 
part,  also,  it  is  the  nature  of  the  operations  involved.  After 
the  seed  has  been  planted,  time  must  be  given  it  to  grow,  and 
this  would  be  so  were  there  no  winter.  So  in  the  fisheries,  it 
is  not  alone  the  stress  of  weather  which  obliges  the  laborer  to 
lie  idle  during  portions  of  the  year,  but,  in  part,  the  reproduc- 
tive necessities  of  the  fish.  In  other  avocations  it  is  the  force 
of  the  seasons  alone  which  makes  employment  irregular,  as, 
for  example,  in  the  brickmaking,  quarrying,  carpentering, 
house-painting,  and  other  trades. 


COST  OF  LABOR.  247 

Among  social  causes  affecting  the  regularity  of  employ- 
ment, as  between  country  and  country,  may  be  mentioned  the 
observance  of  festivals  and  religious  rites,  which  among  some 
peoples  occupy  a  hundred  and  more  days  in  the  year. 

(e)  The  longer  duration  of  the  labor  power  in  some  avoca- 
tions and  some  countries,  than  in  others. 

Thus,  Dr.  Neison  has  shown  that  the  mean  mortality  in 
England  between  25  and  65  years  of  age,  is,  in  the  clerical 
profession  1.12  per  cent.  ;  in  the  legal,  1.57  ;  in  the  medi- 
cal, 1.81.  In  domestic  service,  the  mortality  among  garden- 
ers, is  but  .93  per  cent.  ;  among  grooms,  1.26  ;  among 
coachmen,  1.84.  Of  the  several  branches  of  manufacture, 
paper  shows  a  mean  mortality  of  1.45  ;  tin,  1.61  ;  iron,  1.75  ; 
glass,  1.83  ;  lead,  2.24  ;  earthenware,  2.57.  Among  the  different 
kinds  of  mining,  iron  shows  a  mean  mortality  of  1.80  ;  tin, 
1.99;  lead,  2.50  ;  copper,  3.17. 

Dr.  Edward  Jarvis  has  shown  that,  on  the  average,  an  Irish- 
man who  has  reached  the  age  of  20,  has  28.88  years  to  live  ;  a 
Frenchman,  32.84  ;  an  Englishman,  35.55  ;  a  Norwegian, 
39.61. 

It  is  evident  that  if  two  persons  begin  to  labor  productively 
at  the  same  period  of  life  and  continue  at  work  until  death, 
at  the  same  nominal  rate  of  wages,  that  one  receives  the 
higher  real  remuneration  who  lives  the  longer,  inasmuch  as 
the  cost  of  his  maintenance  during  the  first  unproductive 
years  of  life,  must,  in  any  philosophical  view  of  the  subject,  be 
charged  upon  his  wages  during  his  period  of  labor. 

321.  Nominal  and  Real  Cost  of  Labor. — Another  distinc- 
tion which  requires  to  be  observed  is  that  between  wages  and 
the  cost  of  labor. 

In  treating  wages  as  high  or  low,  we  occupy  the  laborer's 
point  of  view.  In  treating  the  cost  of  labor  as  high  or  low, 
we  occupy  the  point  of  view  of  the  employer. 

Wages  are  high  or  low  according  to  the  abundance  or  the 
scantiness  of  the  necessaries,  comforts  and  luxuries  which  the 
laborer  can  command.  The  cost  of  labor  is  high  or  low, 
according  as  the  employer  gets  an  ample  or  a  scanty  return  for 
the  wages  he  pays  the  laborer,  whether  these  be  low  or  high. 


248  POLITICAL  ECONOMY. 

It  is  possible  that  an  employer  may  pay  high  wages,  and  yet 
the  cost  of  labor  to  him  may  prove  to  be  low,  by  reason  of  the 
laborer's  superior  efficiency.  On  the  other  hand,  the  employer 
may  pay  wages  on  which  the  laborer  can  only  live  most  miser- 
ably, and  yet  the  employer  be  greatly  straitened  to  get  back 
these  wages  in  the  value  of  his  product,  so  poor  and  wasteful 
may  be  the  services  rendered. 

In  Part  II.  we  have  explained  at  great  length  the  causes- 
which  affect  the  laborer's  efficiency. 

It  is  probably  true  that,  as  a  rule,  the  highest  paid  labor  is 
that  which  costs  the  employer  least.  This  is  evidenced  by  the 
two  facts  that,  generally  speaking,  employers,  when  they 
reduce  their  force,  discharge  their  lowest  paid  laborers  first  ; 
and  that,  generally  speaking,  it  is  the  countries  where  the  low- 
est real  wages  are  paid  which  feel  the  necessity  of  imposing 
commercial  restrictions  to  keep  out  the  products  of  others. 
Thus,  India,  where  the  cotton  spinner  gets  only  20  pence  a 
week,  is  flooded  by  the  cottons  of  England,  where  the  spinner 
receives  20  shillings  ;  and  Russia,  where  the  laborer  in  iron 
works  receives  but  three  roubles  a  week,  has  to  protect  her- 
gelf,  or  thinks  she  must  do  so,  against  the  iron  of  England, 
where  the  workman  receives  four  or  five  times  as  much. 

322.  Relation  of  Wages  to  the  Other    Shares   of  the 
Product  of  Industry. — It  has  not  been  by  accident,  or  whim, 
or  from  any  notion  respecting  the  comparative  dignity  of  the 
several  claimants  to  the  product  of  industry,  that  rent,  inter- 
est, and  profits  have  been  discussed  before  wages. 

This  order  has  been  followed  for  a  positive  reason,  which  is 
that,  in  the  theory  of  distribution  here  proposed,  wages  equal 
the  product  of  industry  minus  the  three  parts  already  determ- 
ined in  their  nature  and  amount.  In  this  view,  the  laboring 
class  receive  all  they  help  to  produce,  subject  to  deduction  on 
the  three  several  accounts  mentioned. 

323.  Rent  Deducted.— First,  rent  is  to  be  deducted.     On 
the  lowest  grade  of  lands  there  is  no  rent.     On  the  more  pro- 
ductive soils  rent,  at  its  economic  maximum,  equals  the  excess 
of  produce  after  the  cost  of  cultivating  the  no-rent  soils  has 
been  paid.     This  rent  does  not  affect  the  price  of  agricultural 


THE  LABORER'S  SHARE.  249 

produce,  and  does  not  come  out  of  the  remuneration  of  the 
agricultural  laborer. 

We  thus  see  that  the  first  deduction  to  be  made  from  the 
product  of  industry  is  of  a  perfectly  definite  nature,  and  that, 
on  the  assumption  of  active  competition  on  both  sides,  the 
amount  of  that  reduction  is  susceptible  of  arithmetical  com- 
putation. Rent  must  come  out  before  the  question  of  wages 
is  considered.  The  laborer  can  not  get  it,  or  any  part  of  it,  by 
any  economic  means.  It  must  go  to  the  land-owner,  unless  it 
be  confiscated  by  the  State,  or  ravished  away  by  violence. 

324.  Interest  Deducted.— Secondly,  from  the  product  of 
industry  must  be  deducted  a  remuneration  for  the  use  of  capi- 
tal.    That  remuneration  must  be  high  enough  to  induce  those 
who  have  produced  wealth  to  save  it  and  store  it  up,  in  the 
place  of  consuming  it  immediately  for  the  gratification  of  per- 
sonal appetites  or  tastes.     This  may  imply, -in  one  state  of 
society,   an  annual  rate  of  interest   of   eight   per   cent.;   in 
another,  of  five  ;  in  another,  of  three. 

325.  Profits  Deducted.— The  third  and  last  deduction  to 
be  made  from  the  product  of  industry  before  the    laborer 
becomes  entitled  thereto,  is  what  we  have  called  profits,  the 
remuneration  of  the  entrepreneur,  the  employer,  the  man  of 
business,  the  captain  of  industry,  who  sets  in  motion  the  com- 
plicated machinery  of  modern  production. 

From  the  importance  assigned,  in  this  work,  to  the  entre- 
preneur's or  employer's  function,  the  conclusion  might  be  hast- 
ily drawn  that  production  would  be  primarily  for  his  benefit, 
that  he,  if  any  one,  would  be  the  residual  claimant  upon  the 
product  ;  that,  paying  the  capitalist,  on  one  side,  enough, 
under  the  name  of  interest,  to  secure  the  use  of  his  capital, 
and  paying  the  laborer,  on  the  other  side,  enough,  under  the 
name  of  wages,  to  secure  his  services,  this  man  of  business, 
captain  of  industry,  merchant,  manufacturer,  or  banker,  would 
retain  as  his  own  all  that  remains.  And  so,  indeed,  in  any 
individual  transaction  he. does,  owing  to  the  force  of  contract, 
just  as  the  farmer,  under  a  lease,  pays  the  owner  of  the  soij 
no  more  in  years  when  the  yield  is  exceptionally  large,  and  no 
less  in  years  when  the  crops  are  short. 


250  POLITICAL  ECONOMY. 

If,  however,  we  have  correctly  indicated  the  source  of  the 
employer's  profits,  they  are  of  the  same  nature  as  rent.  As 
there  are  no-rent  lands,  so  there  is  a  class  of  employers  who 
derive  from  the  business  they  conduct  a  bare  subsistence,  at 
the  cost  of  much  anxiety,  and  perhaps  also  of  discredit,  many 
of  them  living  mainly  at  the  expense  of  their  creditors.  These 
we  call  the  no-profits  employers. 

From  this  point,  where  profits,  if  any,  are  so  small  and  so 
hardly  earned  that  they  may,  for  scientific  purposes,  be  dis- 
regarded, upwards  through  many  grades,  we  have  employers 
who  derive  moderate  profits,  liberal  profits,  grand  profits, 
monumental  profits  aggregating  in  a  lifetime  colossal  for- 
tunes, according  to  the  degrees  in  which  they  bring  courage, 
prudence,  foresight,  frugality,  and  authority  over  men,  to  the 
-organization  and  conduct  of  business  enterprises.  If  I  am  right 
in  this  view  of  the  nature  of  the  entrepreneur's  function  and 
of  the  source  of  his  profits,  those  profits  would,  under  full  and 
free  competition,  not  form  a  part  of  the  price  of  commodities, 
.and  are  not  obtained  by  deduction  from  wages.  In  other 
words,  these  profits  consist  wholly  of  wealth  created  by  the 
individual  employers  themselves,  over  and  above  the  wealth 
which  would  have  been  produced,  in  similar  industrial  enter- 
prises, by  the  same  labor-force  and  capital-force  under  the 
control  of  employers  of  less  efficiency. 

326.  The  Laborer,  the  Residual  Claimant  to  the  Product 
of  Industry. — These  three  shares  being  cut  off  the  product  of 
industry,  the  whole  remaining  body  of  wealth,  daily  or  annu- 
ally created,  is  the  property  of  the  laboring  class  ;*  their 

*  This  is  substantially  the  position  taken  by  the  lamented  Prof.  Stanley 
Jevons,  of  University  College,  London,  who  states  that  "  The  wages  of  a 
working  man  are  ultimately  coincident  with  what  he  produces,  after  the 
•deduction  of  rent,  taxes,  and  the  interest  of  capital."  In  this  matter  of 
Wages,  Prof.  Jevons  emphatically  repudiates  the  doctrines  generally 
-accepted  in  his  own  country,  saying  :  "  Our  English  Economists  have 
been  living  in  a  fool's  paradise,"  and  frankly  ranges  himself  with  the 
French  economists,  "from  Condillac,  Baudeau,  and  Le  Trosne,  through 
J.  B.  Say,  DeStutt  Tracy,  Storch,  and  others,  down  to  Bastiat  and  Cour- 
•celle  Seneuil." 

"  The  truth,"  he  declares,  "is  with  the  French  School,  and  the  sooner 


THE    WAGE  FUND    THEORY.  251 

wages,  or  the  remuneration  of  their  services.  So  far  as,  by 
their  energy  in  work,  their  economy  in  the  use  of  materials, 
or  their  care  in  dealing  with  the  finished  product,  the  value  of 
that  product  is  increased,  that  increase  goes  to  them  by  purely 
natural  laws,  provided  only  competition  be  full  and  free. 
Every  invention  in  mechanics,  every  discovery  in  the  chemi- 
cal art,  no  matter  by  whom  made,  inures  directly  and  imme- 
diately to  their  benefit,  except  so  far  as  a  limited  monopoly 
may  be  created  by  law,  for  the  encouragement  of  invention 
and  discovery. 

Unless  by  their  own  neglect  of  their  own  interests,  or 
through  inequitable  laws,  or  social  customs  having  the  force 
of  law,  no  other  party  can  enter  to  make  any  claim  on  the 
product  of  industry,*  nor  can  any  one  of  the  three  parties 
already  indicated  carry  away  any  thing  in  excess  of  its  nor- 
mal share,  as  hereinbefore  defined. 

327.  The  English  Doctrine  of  Wages.— The  view  here 
taken  of  the  Distribution  of  Wealth,  under  the  entrepreneur 
organization  of  industry,  differs  widely  from  that  held  by  the 
English  economists,  except  as  respects  the  single  share  of  the 
landowner — Rent.  According  to  those  writers,  the  capitalist- 
employer  is  the  residual  claimant  upon  the  product  of  indus- 
try. DeQuincey  summed  up  the  Ricardian  doctrine  in  saying  : 
"Profits  are  the  leavings  of  Wages."f  From  the  entire 


we  recognize  the  fact,  the  better  it  will  be  for  all  the  world,  except,  per- 
haps, the  few  writers  who  are  too  far  committed  to  the  old  erroneous 
doctrines  to  allow  of  renunciation."  [Preface  to  the  Second  Edition  of 
his  Theory  of  Political  Economy,  1880.] 

I  may  remark  that  when,  in  1874,  I  had  occasion  to  trace  the  genesis 
and  the  literary  history  of  the  Wage  Fund  Theory  (See  North  American 
Review,  January,  1875),  I  did  not  find  a  single  French  economist  infected 
by  the  pernicious  doctrine  which  long  held  sway  across  the  channel. 

*  With  the  exception,  still,  of  the  State  and  of  the  speculator,  whom  it 
has  seemed  best,  for  clearness  of  view,  to  remove  altogether  from  the 
present  discussion,  and  whose  shares  in  the  distribution  of  the  product  of 
industry  will  be  elsewhere  considered. 

t  "  There  is  no  other  way,"  said  Ricardo,  "  of  keeping  profits  up,  but 
by  keeping  wages  down."  "Profits,"  said  Mr.  McCulloch,  "vary  in- 


252  POLITICAL  ECONOMY. 

product  of  the  exertions  and  sacrifices  of  the  industrial  com- 
munity, there  is  cut  off  Rent,  as  determined  by  the  Ricardian 
formula.  Next  the  laborer's  share  is  ascertained  in  accord- 
ance with  the  Wage  Fund,*  the  amount  possibly  to  be  paid  in 
this  way  being  irrespective  alike  of  the  number  and  of  the 
industrial  quality  of  the  laboring  class.  The  rest  belongs  to 
the  capitalist-employer,  as  his  own  profits,  so-called,  consist- 
ing of  two  portions,  one,  due  to  the  abstinence  of  the  owner 
of  capital,  as  such  ;  the  other  due  to  the  present,  personal 
exertions  of  the  employer,  as  such. 

By  this  rule  of  distribution,  no  gain  in  the  efficiency  of  the 
individual  laborer,  whether  taking  the  direction  of  greater 
energy  or  of  greater  economy  ;  no  mechanical  invention,  no 
chemical  discovery,  however  much  the  capability  of  produc- 
tion may  be  increased  thereby,  can  profit  the  laborer  any 
thing,  except  as  it  first  enhances  the  profits  of  the  employing 
class,  and  thereby  adds  to  the  capital  of  the  wage  fund,  to  be 
thereafter  expended  in  purchasing  labor. 

328.  In  What  Sense  Wages  are  the  Eesidual  Share.— 
I  have  spoken  of  the  laborer  as  the  residual  claimant  xipon 
the  product  of  industry.  That  view  of  wages  being  new,  even 
the  phrase  in  which  I  have  embodied  it  has  been  excepted  to. 
Since  the  first  edition  of  this  treatise  was  published,  certain 
writers  have  declared  that  there  is  no  more  reason  for  applying 
the  term,  residual,  to  wages  than  for  applying  it  to  any  other 
share  of  the  product  of  industry ;  that  each  share,  in  turn, 
comprises  all  which  the  other  shares  do  not  include. 

versely  as  wages  ;  that  is,  they  fall  when  wages  rise,  and  rise  when 
wages  fall." 

In  both  these  statements,  the  word  profits  is  used  to  include  interest, 
as  elsewhere  explained. 

*  A  discussion  of  the  Wage  Fund  Theory  will  be  found  in  Part  VI. 
A  few  years  ago,  I  should  not  have  presumed  to  pass  by  this  point  with- 
out undertaking  a  formal  refutation  of  that  theory  which,  till  recently, 
had  complete  possession  of  the  English  Economists.  The  fact  that, 
though  now  generally  abandoned,  it  still  holds  its  place  in  so  many 
treatises  on  the  shelves  of  our  libraries,  some  of  which  are  even  now  used 
as  text-books  in  our  Colleges,  appears  to  require  some  notice  to  be 
taken  of  it. 


WAGES:   THE   RESIDUAL   SHARE.  253 

The  criticism  of  these  writers  is  not  just.  It  is  competent 
to  them  to  controvert  the  view  of  the  origin  and  measure  of 
business  profits  presented  in  the  last  chapter ;  and,  in  express- 
ing their  dissent  therefrom,  they  will,  of  course,  deny  that 
wages  constitute  the  residual  share  of  the  product.  But  no 
one  can  properly  make  question  that,  if  this  view  of  business 
profits  be  accepted,  as  correctly  setting  forth,  in  the  large 
way,  the  facts  of  industry,  not  only  is  what  is  manifestly 
meant  by  the  phrases,  residual  claimant,  residual  share,  com- 
pletely true,  but  also  that  those  phrases  themselves  are  per- 
fectly accurate  in  the  expression  of  that  meaning. 

329.  Upon  the  theory  of  profits  which  has  been  expounded, 
the  remuneration  of  labor,  wages,  is  strictly  the  residual  share 
of  the    product  of  industry,  residual  in  this  sense,  that  it  is 
enhanced   by   every  cause,   whatever   that    may   be,   which 
increases  the  product  of  industry    without  giving  to  any  one 
of  the  other  three  parties  to  production  a  claim  to  an  increased 
remuneration,  under  the  operation  of  the  principles  already 
stated ;  residual  in  the  sense  that,  even  if  any  one  or  all  of  the 
other  parties  to  production  become  so  engaged  in  any  given 
increase  of  the  product  as  to  become  entitled  to  an  enhanced 
share  in  its  distribution,  their  shares  still  remain  subject  to 
determination  by  positive  reasons,  while  wages  receive  the 
benefit  of  all  that  is  left  over  after  the  other  claimants  are 
satisfied. 

330.  The  Operation  of  the  Bule  Illustrated.— Granting 
the  correctness  of  the  analysis  we  have  offered,  it  is  demon- 
strable that  the  product  of  industry  may  be  increased  without 
enhancing  the  share  of  all  or  of  any  of  the  other  parties  to 
distribution  ;  and,  even  when  the  other  shares  are  enhanced, 
it  is  possible  and  even  probable  that,  on  the  assumption  of 
perfect  competition,  the  increase  of  product  resulting  from 
the  introduction  of  any  new  force  into  industry  will  be  greater 
than  the  sum  of  the  increments  by  which  rent,  interest,  and 
profits  shall  have  been  enhanced.     If  this  be  so,  then  the 
wages  class  will  receive  a  benefit  from  any  increase  of  the 
product  of  industry  corresponding  to  that  derived  by  the 
residuary  legatee  whenever  the  total  value  of  the  estate  con- 


254  POLITICAL  ECONOMY. 

cerned  is  ascertained  to  have  been,  or  from  some  unanticipated 
cause  becomes,  larger  than  was  in  contemplation  of  the  tes- 
tator when  the  amounts  of  the  several  specific  bequests  were 
determined  upon. 

331.  Thus,  to  take  the  simplest  possible  case,  let  us  say 
that  the  line  ax 


-y 


represents  the  amount  of  the  production  of  a  given  com- 
munity. Of  this  total,  ax,  let  ab  represent  the  share  going  to 
the  land-holding  class  as  rent ;  be,  the  remuneration  of  the 
capitalist  class,  under  the  name  of  interest ;  dx,  the  portion  of 
the  produce  paid  in  wages  ;  and,  by  consequence,  cd,  the  part 
retained  by  the  employing  class  as  profits.  Let  it  now  be  sup- 
posed that  an  instantaneous  improvement  takes  place  in  the 
industrial  quality  of  the  laboring  class,  by  which  they  become 
so  much  more  careful  and  painstaking,  more  adroit  and  alert, 
more  observant  and  dexterous,  as  to  effect  a  saving  in  the 
materials  used  in  each  and  every  stage  of  production,  with  a 
resulting  increase  of  ten  per  cent,  in  the  finished  product  over 
what  had  been  accomplished  by  more  wasteful,  clumsy,  heed- 
less operatives.  This  assumption  is  certainly  not  an  unreason- 
able one,  as  regards  the  extent  of  the  possible  saving  to  be 
effected  through  even  a  slight  improvement  in  the  industrial 
quality  of  a  laboring  population.  The  total  product  will  then 
be  represented  by  the  line  ay. 

Our  question  is,  To  whom  will  go  that  portion  of  the  prod- 
uce which  is  represented  by  the  dotted  line  xy,  under  the 
normal  operation  of  economic  forces? 

I  answer,  If  our  analysis  of  the  source  of  business  profits  is 
correct,  this  will  go  to  the  laboring  class  in  enhanced  wages. 

332.  To  whom  else  should  it  go  ?  To  the  landlord  class, 
in  higher  rents?  No,  clearly  not,  since  the  materials  em- 
ployed have  not  been  increased,  but  the  gain  to  production 
results  from  a  better  economy  of  materials,  in  kinds  and 
amounts  as  before.  Hence,  no  greater  demand  is  made  upon 


WAGES:  THE  RE SID  UAL   SHARE.  255 

the  land  ;  hence,  cultivation  is  not  driven  down  to  inferior 
soils  ;  hence,  rents  can  not  be  enhanced,  rent  representing 
only  and  always  the  excess  of  produce  on  the  better  soils 
above  that  of  the  soils  of  the  lowest  net  productiveness  under 
cultivation.  The  line  a6,  therefore,  remains  unchanged. 

Shall  the  line  be  show  any  change  ?  Shall  all  or  any  part 
of  the  gain  xy  go  to  the  capitalist  class,  as  interest  ?  Again 
no.  An  improvement  in  the  industrial  quality  of  the  labor- 
ing class  does  not  necessarily  increase  the  amount  of  tools 
and  supplies  required  in  production.  On  the  contrary,  neat, 
intelligent,  careful  workmen  require  even  fewer  tools  than 
ignorant,  slovenly,  heedless  workmen,  to  perform  the  same 
kind  and  amount  of  work,  since  in  the  case  of  the  former 
there  will  be  a  smaller  proportion  at  any  time  broken  or 
dulled  or  from  any  cause  awaiting  repair.  Since,  then,  there 
is  no  greater  demand  for  capital  in  the  case  supposed,  there 
can  be  no  increase  in  the  rate  or  amount  of  interest  ;  and  the 
line  be  will,  therefore,  not  be  lengthened. 

Will  the  whole  or  any  part  of  xy  go  to  the  employing  class, 
as  increased  profits  ?  If  we  have  correctly  discovered  the 
source  of  business  profits,  this  will  not  be  the  case.  An 
improvement  in  the  industrial  quality  of  a  given  body  of  work- 
men would  not  require  an  increase  in  the  number  of  employ- 
ers ;  hence,  would  not,  could  not,  enhance  the  aggregate 
amount  of  profits.  On  the  contrary,  an  improvement  in  the 
industrial  quality  of  the  laboring  class  would  tend,  and  would 
tend  strongly,  to  raise  the  standard  of  business  ability  in  the 
emplojung  class  ;  to  drive  out  the  more  incompetent,  thereby 
raising  the  lower  limit  of  production  in  this  respect,  and 
thereby  reducing  the  aggregate  amount  realized  as  profits. 

We  see,  therefore,  that  the  line  cd  will  not  be  increased,  in 
the  case  supposed  ;  and,  as  we  have  proved  the  same  respect- 
ing ab  and  be  successively,  the  whole  of  xy  must  go  to 
lengthen  the  line  dx,  representing  the  amount  previously 
received  by  the  laboring  class  as  wages. 

333.  We  have  thus  far,  for  convenience  of  reasoning  and 
simplicity  of  illustration,  assumed  that  the  economic  effect  of 
the  improvement  in  the  industrial  quality  of  the  body  of 


256  POLITICAL  ECONOMY. 

laborers  in  view,  is  confined  to  an  increase  in  the  amount  of 
the  finished  product  through  a  diminution  in  that  element  of 
waste  which  enters,  more  or  less,  into  all  production  of  wealth. 
The  same  argument  would  hold  good  of  an  improvement  in 
the  industrial  quality  of  the  laboring  population  which  should 
result  in  the  production  of  goods  of  equal  bulk  and  weight, 
but  of  a  greater  value  through  a  higher  quality,  a  more  per- 
fect finish,  a  nicer  adaptation  to  the  wants  of  the  community. 
Not  only  is  such  an  increase  in  the  value  of  the  product,  which 
does  not  increase  the  amount  of  materials  taken  from  the  soil 
and  hence  has  no  tendency  to  enhance  rents,  possible,  but 
instances  of  this  character  are,  more  than  any  other,  represent- 
ative of  the  modes  of  production  in  communities  of  ad- 
vancing civilization.  Articles  are  often  sold  for  twice,  thrice 
or  ten  times  as  much  as  other  articles,  containing  the  same 
amount  of  material,  simply  by  reason  of  the  skill  and  taste 
which  has  enhanced  their  value  to  the  consumer.  In  all 
such  cases,  the  increase  due  to  the  improvement  in  the  indus- 
trial quality  of  the  laboring  classes  would,  under  the  princi- 
ples laid  down,  go,  entire,  to  the  laborers  themselves,  granted 
only  perfect  competition. 

334.  But  such  an  improvement  in  industrial  quality  would 
probably  be  followed,  sooner  or  later,  by  an  actual  increase 
in  the  amount  of  material  employed.  In  this  case,  what 
would  be  the  distribution  of  the  produce  ?  The  increase 
would  no  longer  go  entire  to  re-enforce  wages.  A  larger 
amount  of  materials  being  used,  a  greater  demand  would  be 
made  thereby  upon  the  productive  powers  of  the  soil  ;  the 
lower  limit  of  cultivation  would  be  pushed  downwards,  a 
longer  or  a  shorter  distance,  to  supply  the  increased  demand  ; 
and  rent  would  be  enhanced,  as  in  all  prosperous  and  pro- 
gressive countries  it  certainly  tends  to  be. 

But  the  amount  which  would  thus  go  to  enhance  rent — it 
might  be  much,  it  might  be  little — would  still  be  limited  by 
the  Ricardian  formula  ;  and  all  the  remainder  would  be 
applied,  under  the  principles  laid  down,  to  increase  the 
remuneration  of  labor,  the  portions  reserved  as  interest  and 
profits  suffering  no  change. 


WAGES:    THE  RESIDUAL   SHARE.  257 

335.  But  suppose,  again,  that  the  improvement  in  the  in- 
dustrial quality  of  the  laboring  class  is  carried  to  such  a  degree 
as  to  qualify  them  to  use  a  higher  order  of  tools,  more  com- 
plicated,  more  delicate,  and  hence   more   expensive  ;  or   to 
abandon  the  hand-tools,  heretofore  employed,  for  costly  and 
powerful   machines.     Here   we    should    have    an    increased 
demand  for  capital  ;  and,  by  consequence,  supply  remaining, 
for  the  time,  unchanged,  interest  would  be  enhanced.     But 
the  amount  by  which  interest  would  be  thus  enhanced  would 
not  be  the  amount  by  which  production  was  increased.     On 
the  contrary,  the  rate  of  interest  would  still  be  governed  by 
the  relation  between  the  supply  of  and  the  demand  for  capi- 
tal ;  and  all  the  increase  of  product  which  was  not  thus  taken 
would,  under  the  principles  laid  down,  go  directly  and   exclu- 
sively to  increase  wages. 

336.  We  may  illustrate  this -by  supposing  a  workman,  who 
has  hitherto  been  using  a  few  coarse,  simple,  cheap  and  dura- 
ble tools,  in  producing  a  low-grade  article,  to  have  qualified 
himself,   by  private   study  and   practice,  to  use   numerous, 
delicate  and  intricate  tools,  in  doing  a  high  order  of  work,  in 
the  same  branch  of  industry.     The  cost  of  maintaining  the 
stock  of  tools  of  the  former  kind  might  have  been,  including 
interest,  repairs  and  occasional  replacement,  five  dollars,  a 
year.     The  cost  of  maintaining  the  stock  of  new  tools  might 
be  fifty  dollars  a  year.     But  the  increased  daily  value  of  the 
product,  due  to  the  introduction  of  a  superior  order  of  work- 
manship, might  be  a  dollar,  or  two  dollars,  a  day.     What  I 
am  insisting   upon   is,  that,  not  only  would   the   individual 
workman,  in  the  given  instance,  if  he  intelligently  pursued 
his  own  interest,  secure  higher  wages,  corresponding  to  the 
increased  value  of  his  production,  minus  the  added  cost  of  the 
service  (which  probably  no  one  would  deny),  but  that  what 
would  be  true  of  the  individual  workman  will  be  true  of  the 
working  class,  as  a  whole,  so  far  as,  by  an  improvement  in 
their  industrial  character,  they  qualify  themselves  for  a  higher 
grade   of   production,  higher    in    respect    to    quality  or    to 
amount. 

And  it  is  to  be  remembered,  in  this  connection,  that  what- 


258  POLITICAL  ECONOMY. 

ever  the  advantage  which  the  added  demand  for  tools  or 
machineiy  may,  in  the  immediate  instance,  give  to  the  own- 
ers of  existing  capital,  that  advantage  will  steadily  tend  to 
decline.  Thus,  in  the  case  supposed,  the  first  equipment  of 
the  improved  laborer  for  his  new  work,  might  cost  $200, 
increasing  the  demand  for  capital  to  this  extent,  and  thus 
raising  somewhat  the  sum  obtained  in  that  community,  that 
year,  as  interest.  But  the  increase  of  production,  might,  as 
we  have  reasonably  supposed,  amount  to  even  more  than  $200 
annually  ;  so  that  the  supply  of  capital,  relatively  to  the 
demand,  might,  after  a  single  year,  be  greater  than  before  ; 
while  the  capability  of  accumulating  capital  during  each  suc- 
ceeding year  would  be  greatly  enhanced. 


CHAPTER  VI. 

WAGES. — CONTINUED. 

THE    CONDITIONS     OP    THE    LABORING    CLASS    AS    AFFECTED   BT 
IMPERFECT  COMPETITION. 

337'  The  Economic  Position  of  The  Laboring  Class. — 
In  Chapter  V.  we  set  forth  the  relation  of  wages  to  the 
other  shares  of  the  product  of  industry,  reaching  the  conclu- 
sion that,  notwithstanding  the  formal  attitude  of  the  laboring 
class  in  industry,  as  hired  by  the  entrepi-eneur  class  and  work- 
ing for  stipulated  wages,  the  normal  operation  of  the  laws  of 
exchange  is  to  make  the  former,  in  eif ect,  the  owners  of  the 
entire  product,  subject  to  the  requirement  of  paying  the 
definite  sums  charged  against  that  product,  on  the  three  several 
accounts  of  rent,  interest  and  profits. 

338.  What  Will  They  do  With  it  ?— This  position  of  the 
laboring  class  would  seem  to  be  a  not  ineligible  one,  conceding 
that  the  exigencies  of  modern  production  require  the  mainte- 
nance of  the  entrepreneur  class. 

We  have  seen  what  is  the  best  the  laboring  class  can,  in 
theory,  do  for  themselves,  under  the  existing  organization  of 


CHANGE   OF  RESIDENCE.  259 

industry  :  what  is  the  most  they  can  claim  for  their  services. 
Let  us  now  inquire,  what,  in  fact,  this  class  do  for  themselves 
in  this  respect  ;  and  if  they  fall  short  of  realizing  their  full 
share  of  the  product  of  industry,  to  what  causes  the  failure  is 
to  be  attributed. 

The  laboring  class  may  do  themselves  an  economic  injury  in 
either  or  both  of  two  ways  :  first,  through  excessive  repro- 
duction, sexually,  leading  to  over-population,  involving  the 
necessity  of  cultivating  poorer  and  poorer  soils,  with  the  result 
of  continually  diminishing  per  capita  production  ;  secondly, 
through  a  weak,  spasmodic,  or  unintelligent  competition  with 
the  employing  class. 

The  consideration  of  the  former  of  these  causes  will  be 
postponed  till  we  reach  the  department  of  Consumption.  The 
latter  will  form  the  subject  of  the  following  paragraphs. 

339.  Imperfect  Competition — A  total  failure  of  competi- 
tion is  impossible.  No  class  will  be  found  so  stolid  and  inert 
as  to  make  no  exertions  whatever  to  change  a  worse  for  a 
better  condition.  The  impulse  to  buy  in  the  cheaper  and  to 
sell  in  the  dearer  market  will,  in  some  measure,  actuate  every 
body  of  laborers.  Yet  the  degree  in  which  that  motive  is 
effectual  will  be  found  to  vary  widely  as  between  men  of 
different  climes,  and  of  different  races.  Compare  the  New 
Englander  with  the  East  Indian.  The  former,  inquisitive, 
alert,  aggressive,  almost  destitute  of  attachment  to  locality, 
quick  to  change  his  avocation,  if  a  profit  shall  appear,  and  so 
gifted  with  mechanical  insight  and  aptitude  as  to  acquire  the 
rudiments  of  any  art  in  an  astonishingly  short  time;  occupying 
a  country  where  the  transmission  of  intelligence  is  incessant,, 
and  where  the  transportation  of  passengers  and  freight  reaches 
the  maximum  of  ease,  security  and  cheapness  ;  enjoying  the 
advantage  of  a  wide  mai-gin  of  living,  and  with  no  inconsider- 
able savings  laid  by  from  the  liberal  earnings  of  former  years, 
is  not  likely  to  remain  long  ignorant  of  opportunities  for  im- 
proving his  industrial  conditions,  whether  through  change  of 
place  or  avocation,  or  likely  long  to  allow  such  opportunities 
to  remain  unimproved.  We  get  a  measure  of  this  freedom  of 
individual  movement  in  the  census  statistics,  by  which  it  ap- 


260  POLITICAL  ECONOMY. 

pears  that  in  1880  nine  and  a  half  millions  of  the  native  popu- 
lation were  living  in  States  other  than  those  of  their  birth. 

340.  The  Immobility  of  Labor.— On  the  other  hand,  the 
East  Indian,  bound  in  fetters  of  caste,  of  superstition,   of 
ignorance  and  poverty,  occupying  a  country  vast  portions  of 
which  are  traversed  only  by  bullock-paths,  abides  in  his  lot,  in 
spite  of  wretchedness  and  famine,  as  though  rooted  in  the 
soil  itself. 

But  we  have  not  to  go  as  far  away  as  India,  to  find  instances 
•of  a  high  degree  of  immobility  in  the  population,  in  the  face 
of  strong  and  urgent  reasons  for  migration.  A  century  ago 
Adam  Smith  wrote  : 

"  Eighteen  pence  a  day  may  be  reckoned  the  common  price 
of  labor  in  London  and  its  neighborhood.  At  a  few  miles' 
distance,  it  falls  to  fourteen  and  fifteen  pence.  Ten  pence 
may  be  reckoned  its  price  in  Edinburgh  and  its  neighborhood. 
At  a  few  miles'  distance  it  falls  to  eight  pence,  the  usual  price 
of  common  labor  through  the  greater  part  of  the  low  country 
of  Scotland,  where  it  varies  a  good  deal  less  than  in  England. 
/Such  a  difference  of  prices,  which  it  seems  is  not  always  suffi- 
cient to  transport  a  man  from  one  parish  to  another,  would  nec- 
essarily occasion  so  great  a  transportation  of  the  most  bulky 
commodities,  not  only  from  one  point  to  another, but  from  one 
end  of  the  kingdom,  almost  from  one  end  of  the  world,  to 
•another,  as  would  soon  reduce  them  more  nearly  to  a  level" 
So  great  did  the  resistance  to  the  flow  of  labor  appear  to  his 
«ye,  that  he  declared  man  to  be  "  of  all  sorts  of  luggage  the 
most  difficult  to  be  transported." 

341.  It   might  be  supposed  that  the  increase  during  the 
-century  in  the  facilities  for  transportation  and  for  the  diffu- 
sion of  information  would  have  done  much  to  remove  the 
obstructions  which,  in  Adam  Smith's  day,  retarded  the  move- 
ment of  labor  to  its  market ;  but  the  force  of  ignorance,  fear 
and  poverty  is  not  so  easily  broken.     Prof.  Fawcett  in  his 
Political  Economy  writes  :  "  During  the  winter  months,  an 
ordinary  agricultural  laborer  in  Yorkshire  earns  thirteen  shil- 
lings a  week  ;  the  wages  of  a  Wiltshire  or  Dorsetshire  laborer, 
•doing  the  same  kind  of  work,  and  working  a  similar  number 


CHANGE   OF  OCCUPATION.  261 

of  hours,  are  only  nine  shillings  a  week.  This  great  difference 
in  wages  is  not  counterbalanced  by  other  considerations. 
Living  is  not  more  expensive  in  Yorkshire  than  in  Dorset- 
shire, and  the  Dorsetshire  laborer  does  not  enjoy  any  particular 
advantages  or  privileges  which  are  denied  to  the  Yorkshire 
laborer." 

Instances  without  number  might  be  cited,  showing  the 
practical  immobility  of  the  agricultural  population  of  England 
in  the  past  ;  and  in  this  respect,  England  may  be  taken  as 
fairly  representing  the  actual  world  about  which  the  econo- 
mist reasons,  being  in  the  mean  between  the  people  of  North 
America  and  Australia,  on  the  one  hand,  and  those  of  Asia, 
on  the  other. 

342.  Change  of  Occupation. — So  much  for  the  movement 
from  place  to  place,  which  is  needed  to  meet  the  requirements 
of  industrial  competition.  Of  the  movement  from  one  avoca- 
tion to  another,  which  may  be  required  for  the  same  end,  an 
even  less  favorable  account  may  be  given.  An  American  will 
find  it  difficult  to  conceive  how  slow  and  painful  is  the  process 
by  which  an  overcrowded  avocation  is  depleted  or  a  growing 
industry  re-enforced,  in  any  of  the  States  of  Europe. 

In  his  last  and  greatest  work  Prof.  Cairnes  sought  to  reach 
a  measure  of  the  rate  of  this  movement  in  England.  His 
result  was  substantially  this  :  that  only  loss  by  death  or  disa- 
bility could  be  relied  upon  to  relieve  the  labor  market  in  any 
branch  of  industry  which  was  overdone,  and  that  the  sole 
disposable  fund  for  supplying  new  laborers  to  new  or  grow- 
ing branches  of  industry  was  to  be  found  in  the  body  of  per- 
sons each  year  coming  of  age,  industrially  speaking.  It  would 
be  easy  to  show  that  the  "  play  "  thus  given  to  the  labor  mar- 
ket is  far  within  the  limits  of  those  great  oscillations  of 
industry  which  labor  must  meet,  fully  and  promptly,  or 
suffer  because  it  can  not  meet  them.  Moreover,  it  is  doubt- 
ful whether  Prof.  Cairnes  does  not  overrate  this  disposable 
labor  fund. 

So  far  from  the  members  of  the  rising  generation  being 
perfectly  free  to  move  into  avocations  other  than  those  of 
their  parents,  mill-owners  are  harassed  by  applications  from 


262  POLITICAL  ECONOMY. 

their  hands  to  take  children  into  employment  on  almost  any 
terms.  The  more  miserable  the  parents'  condition,  the  greater 
becomes  the  pressure  on  them  to  crowd  their  children  sonic- 
how,  somewhere,  into  service.  Once  in  a  mill,  we  know  how 
little  chance  there  is  of  the  children  afterwards  taking  up  for 
themselves  another  way  of  life. 

In  the  agricultural  districts  of  England,  gangs  of  children 
of  all  ages,  from  sixteen  down  to  ten  or  even  five  years,  were 
formerly  organized  and  driven  from  farm  to  farm,  and  from 
parish  to  parish,  to  work  all  day  under  strange  overseers,  and 
to  sleep  at  night  in  barns,  huddled  together  without  distinc- 
tion of  sex.  The  system  of  public  agricultural  gangs  required 
an  act  of  Parliament  to  break  it  up,  and  we  have  the  testi- 
mony of  the  commission  of  1867,  that,  in  spite  of  the  law, 
gangs  were  then  still  formed  in  some  parts  of  the  kingdom. 
So  late  as  1870,  children  were  employed  in  the  brickyards  of 
England,  under  strange  masters,  at  three  and  a  half  years  of 
age.  Account  is  given  of  a  boy  weighing  52  pounds,  whose 
daily  task  covered  fourteen  miles  ;  one-half  of  this  with  a  load 
of  clay  weighing  forty  pounds,  upon  his  head. 

Such  instances  show  graphically  the  error  of  supposing  that 
parents  who  are  tied  down  hopelessly  to  an  occupation  which 
affords  but  the  barest  subsistence,  can  freely  dispose  of  their 
children  to  the  best  advantage,  among  a  large  class  of  occu- 
pations. Especially  when  we  consider  that,  in  the  develop- 
ment of  modern  industry,  trades  become  highly  localized,  shall 
we  see  the  practical  fallacy  of  this  assumption.  Even  if  we 
suppose  the  parent  to  be  advised  of  better  opportunities 
opening  in  some  trade  prosecuted  at  a  distance,  yet,  years 
before  the  boy  or  girl  will  be  fit  to  send  away  from  home,  the 
chance  of  earning  a  few  pence  in  the  mill  where  the  parent 
works,  will  almost  irresistibly  draw  the  child  into  the  vortex. 
The  truth  is,  that  until  you  secure  mobility  to  adult  labor  you 
will  fail  to  find  it  in  the  rising  generation,  and  that  among  an 
ignorant  and  degraded  population  four-fifths,  perhaps  nine- 
tenths,  of  all  children,  by  what  may  be  called  a  moral  neces- 
sity, follow  the  occupations  of  their  parents,  or  those  with 
whom  fortune  has  placed  them. 


THE   ECONOMIC  HARMONIES.  263 

343.  The  Industrial  Effects  of  a  Failure  of  Competition.— 
If  industrial  movement  may  be  thus  tardy  and  limited,  even 
among  a  people  of  Teutonic  blood  and  enjoying  free  institu- 
tions, it  becomes  a  matter  of  serious  concern  to  inquire  what 
are  the  effects  of  a  partial  failure  of  competition. 

And,  first,  let  us  see  just  what  it  is  that  we  look  to  competi- 
tion, when  active  and  complete,  to  accomplish. 

We  have  defined  competition  to  be  the  operation  of  indi- 
vidual self-interest  among  buyers  and  sellers.  We  saw  that 
this  implied  that  each  man  acts  for  himself,  solely,  by  himself, 
solely,  iri  order  to  get  the  most  he  can  from  others,  and  to 
give  the  least  he  must,  himself. 

Now,  this  may  seem  a  very  unamiable  thing  yet,  rightly 
viewed,  perfect  competition  would  be  seen  to  be  the  order  of 
the  economic  universe,  as  truly  as  gravity  is  the  order  of  the 
physical  universe,  and  to  be  not  less  harmonious  and  bene- 
ficent in  operation.  If  free  and  full,  unqualified,  unremitting 
competition  could  be  secured,  the  results  would  be  more 
honorable  to  human  nature,  as  well  as  practically  more 
advantageous,  in  the  same  degree,  and  for  the  same  reason 
that  absolute  justice  would  be  more  advantageous  and  more 
honorable  than  partial  justice  patched  up  with  charity. 

344.  The    Economic    Harmonies. —  When   we    say    that 
through   competition  one  reaches  his  best  market,  does  this 
mean  that  in  that  way  he  does  best  for   himself  alone  ?     On 
the   contrary,  when  one  reaches  his  best  market,  he  does  not 
only  that  which  is  best  for  himself,  but  that  which  is  best  for 
others.     He    not  only  gets  more  than   by  resorting  to  any 
other  market,  but,  in  the  very  act  of  doing  so,  he  gives  more, 
also.     If  in  that  market  his  service  or  commodity  bears  a 
higher  price  than  elsewhere,  this  is  of  itself  a  proof  that  his 
service  or  commodity  is  there  in  greater  demand,  more  needed, 
the   subject   of   an   intenser    want,   than    elsewhere.      Con- 
sequently, were  he  to   resort  elsewhere,  he  would   not  only 
receive  less  himself,  but  would  satisfy  a  lower  want  on  the 
part  of  others,  leaving  a  higher  want  unsatisfied. 

345.— But  the  main  office  of  competition  is  to  preserve  indi- 
viduals and  classes  from  destruction  or  industrial  degradation, 


264  POLITICAL  ECONOMY. 

through  excessive  burdens  imposed  by  authority,  through 
natural  catastrophes  affecting  the  sources  of  livelihood,  or 
through  the  gradual  decay  of  commercial  demand.  Deal  the 
heaviest  blow  you  can  with  a  hammer  into  a  bin  of  barley, 
and  you  will  not  injure  a  single  grain,  though  the  hammer  be 
buried  to  your  hand,  because  every  grain  moves  freely  from 
its  place,  and  the  mass  simply  opens  to  receive  the  intruding 
substance  and  closes  around  and  above  it.  Lay  one  of  the 
grains  upon  a  rock,  and  your  blow  will  smash  it  into  a  paste. 
Let  the  stoutest  ship  that  ever  rode  out  a  hundred  gales  have 
her  bow  lodged  in  the  sands,  and  the  oncoming  waves  of  the 
first  storm  will  break  her  up  in  a  few  hours. 

In  the  nature  of  the  case,  blows  must  fall,  from  time  to 
time,  upon  every  industrial  community  or  class.  Whether 
these  be  due  to  wars  or  failures  of  the  harvest,  or  to  confla- 
grations and  floods,  or  to  the  shifting  of  commercial  demand, 
or  to  vicious  legislation,  labor  has  an  ample  security  against 
deep  and  permanent  injury,  so  long  as  its  mobility  is  unim- 
paired. On  whatever  spot  the  blow  may  fall,  complete  free- 
dom of  movement,  from  place  to  place  and  from  avocation  to 
avocation,  will  cause  the  original  loss  to  be  distributed  over 
the  industrial  body,  while  the  forces  of  repair  and  restoration 
will  immediately  set  to  work  to  make  good  what  has  been 
taken  away. 

346.  To  Him  That  Hath  Shall  be  Given. — This  tendency 
to  the  diffusion  of  all  benefits  to  the  equalization  of  all  bur- 
dens, and  to  the  repair  of  all  local  injuries  at  the  expense  of 
the  vital  powers  of  the  whole  industrial  body,  is  properly  the 
subject  of  admiring  contemplation  by  social  and  ethical  phi- 
losophers. Frederic  Bastiat  has,  in  words  of  deathless  elo- 
quence, described  this  play  of  industrial  forces,  under  the 
title  of  The  Economic  Harmonies. 

But  the  political  economist  who  undertakes  the  explanation 
of  the  actual  phenomena  of  the  industrial  world,  is  bound  to 
note,  not  only  that  the  assumption  of  full  and  free  competi- 
tion, which  underlies  this  theory  of  the  self-protecting  power 
of  labor,  is  wholly  gratuitous,  as  applied  to  vast  portions  of 
the  earth's  population  ;  but,  also,  that,  when  the  mobility  of 


TO  HIM    THA  T  HA  TH.  265 

labor  becomes  in  a  high  degree  impaired,  the  reparative  and 
restorative  forces  do  not  act  at  all.  On  the  contrary,  a  new 
and  antagonistic  principle  begins  to  operate,  viz.,  the  princi- 
ple that  "  To  him  that  hath  shall  be  given,  and  from  him  that 
hath  not  shall  be  taken  away  even  the  little  that  he  seemeth 
to  have." 

Under  the  rule  of  this  great  economic  as  well  as  social  law, 
industrial  injuries  once  suffered  tend  to  remain,  and  not  to  be 
removed.  The  wretch  who  has  fallen  is  trampled  on  in  the 
maddening  struggle  for  place  and  pelf.  In  the  case  of  the 
laborer  thrown  out  of  employment,  for  instance,  there  is 
always  danger  that  self-respect,  hopefulness  and  ambition,, 
which  we  have  seen  (par.  76)  to  be  most  powerful  factors  in 
industrial  efficiency,  may  fail  among  squalid  surroundings.  A 
less  ample  or  nourishing  diet,  and  less  healthful  conditions, 
submitted  to  for  awhile,  perhaps  the  contracting  of  dis- 
tinctly bad  habits  through  anxiety,  disappointment  and  en- 
forced idleness,  may  so  lower  his  industrial  power  as  to  unfit 
him  to  render  the  same  amount  and  quality  of  service  as 
before.  In  such  a  case,  not  only  is  there  no  tendency  in  any 
economic  force  to  repair  the  mischief  that  has  been  done,  but 
even  the  occurrence  of  better  times  and  new  opportunities 
would  not  restore  the  shattered  industrial  manhood. 

347.  Economic  Injuries  Tend  to  Remain  and  to  Deepen. 
— Irrespective  of  any  thing  catastrophic,  the  tendency  of  purely 
economic  forces,  under  impaired  competition,  is  continually 
to  aggravate  the  disadvantages  from  which  any  person  or 
class  may  suffer  in  the  beginning.  Defeat  is  an  ill  prepara- 
tive for  fresh  conflicts.  Every  gain  which  one  makes  at  the 
expense  of  another  furnishes  the  sinews  of  war  for  further 
aggression  ;  every  loss  suffered  diminishes  the  capabilities  of 
further  resistance. 

This  principle  applies  with  increasing  force  as  we  go  down- 
ward in  the  industrial  scale.  Emphatically  is  it  true,  that  the 
curse  of  the  poor  is  their  poverty.  Cheated  in  quantity,  qual- 
ity and  price,  in  whatever  they  purchase,  they  are  unable  to 
get  even  as  much  proportionally  for  their  little  as  the  rich  for 
their  larger  means.  The  tendency  of  purely  economic  forces, 


266  POLITICAL  ECONOMY. 

therefore,  is  to  widen  the  differences  existing  in  the  constitu- 
tion of  industrial  society,  and  to  subject  every  person  or  class, 
who  may,  from  any  cause,  be  put  at  disadvantage,  to  a  con- 
stantly increasing  burden. 

348.  What  may  help  the  Laboring  Class  in  Competition 
for  the  Product  of  Industry. — Granting  that  perfect  compe- 
tition would  do  all  that  has  been  claimed  for  the  working 
classes,  realizing  the  very  ideal  conditions  under  which  they 
should  work,  but,  at  the  same  time,  recognizing  the  fact  that, 
in  industrial  society  as  now  constituted,  competition  is  very 
partial  and  incomplete,  let  us  inquire  what,  if  any  thing,  can 
be  done  to  help  the  laboring  classes  in  their  competition  for 
the  product  of  industry. 

The  answer  of  the  economists  of  the  laissez  faire,  or  Man- 
chester school  to  this  inquiry  is  a  very  easy  one.  Freedom 
being  the  ideal  condition,  and  society  suffering  from  lack  of 
it,  let  us  have  all  the  freedom  we  can  get,  at  this  time,  and 
thus  prepare  the  way  for  more  of  it  in  the  time  to  come.  Let 
us  abolish  every  thing  in  the  way  of  restraint  or  regulation, 
every  thing  in  the  way  of  concert  or  combination  in  industry, 
which  we  can  abolish,  and  trust  to  the  future  for  doing  away 
with  those  obstructions  which  are  now  beyond  our  reach. 

349.  Economics  and  Politics. — This  answer  is  so  easy  as 
not  unfairly  to  arouse  some  suspicion.     Do  we  deal  in  this 
spirit  with  the  question  of  progressive  freedom  in  govern- 
ment ?     Does  any  right-thinking  man,  with   his  eyes  open 
upon  the  experience  of  the  last  hundred  years,  allege  that 
progress  is  best  to  be  effected  by  indiscriminately  throwing 
off  restraints  ?     Is  it  not  admitted  that  discretion  and  order 
must  be  observed  in  removing  political  checks  and  balances 
and  limitations  ?     Are  there  not,  in  any  well-organized  society, 
restrictions  which  correspond  to  certain  human  infirmities,  of 
which  we  can  not  now  hope  to  rid  the  race,  in  such  a  way  that 
the  existence  of  the  restrictions  increases  the  actual  degree  of 
freedom*  enjoyed  by  the  community? 

*  "  The  modern  English  citizen,  who  lives  under  the  burden  of  the 
revised  edition  of  the  statutes,  not  to  speak  of  innumerable  municipal, 
railroad,  sanitary  and  other  by-laws,  is,  after  all,  an  infinitely  freer,  as 


FREEDOM  VS.   RESTRAINT.  267 

350.  The  Burning  Theater.— But  if  any  reader  distrusts  an 
analogy  drawn  between  economics  and  politics,  let  us  take  a 
case  from  real  life,  where  all  the  elements  can  be  easily  and 
confidently  grasped.     Suppose  a  crowded  audience  to  be  seek- 
ing to  escape  from  a  theater  which  has  taken  fire.     There 
might  be  time  to  allow  the  safe  discharge  of  all  in  the  house. 
If  so,  the  individual  interest  of  each  person  clearly  would 
coincide  with  the  interest  of  the  audience  viewed  collectively, 
namely,  that  he  should  fall  in  precisely  according  to  his  posi- 
tion relative  to  the  common  place  of  exit,  and  should  move 
just  so  fast  and  no  faster,  according  to  the  rate  of  discharge 
from  the  building  into  the  outer  air.     Yet,  human   nature 
being  what  it  is,  we  know  that  there  would  be  great  danger 
of  a  furious  rush  for  the  door,  which  would  lead  to  the  serious 
retardation  of  the  movement  of  the  audience  as  a  whole,  and 
probably  to  many  persons  being  trampled  upon  or  burned. 

Suppose,  now,  that,  at  the  moment  of  alarm,  a  score  of  reso- 
lute policemen  were  to  present  themselves,  what  could  they 
do  ?  Clearly  they  could  not  cause  the  audience  to  be  dis- 
charged more  quickly,  safely  and  harmoniously  than  would 
be  the  case  did  every  person  in  the  audience  truly  comprehend 
the  situation  and  act  coolly  with  reference  to  his  own  inter- 
est, as  above  stated.  As  compared,  however,  not  with  what 
the  audience  ought  to  do,  but  what  they  probably  would  do, 
the  advent  of  the  policemen  would  save  many  limbs  and  lives, 
perhaps  avert  a  calamity  that  would  have  filled  the  world 
with  horror.  With  discipline  thus  imposed  upon  men  in 
such  a  situation,  the  procedure  which  would  be  for  the  inter- 
est of  each  and  of  all  might  go  forward  swiftly,  surely 
and  steadily,  under  authoritative  direction.  Discipline  can, 
indeed,  create  no  force,  but  it  may  save  much  waste. 

351.  Begistration  of  Land. — But  if  any  one  is  still  dis- 
posed to  distrust  analogies  drawn  between  things  inside  and 
things  outside  the  sphere  of  economics,  let  us  take  the  case  of 
a  regulation  prescribing  the  registration  of  real  estate  and  the 

well  as  nobler,  creature,  than  the  savage  who  is  always  under  the  despot, 
ism  of  physical  want."    Jevons— "  The  State  in  Relation  to  Labor." 


268  POLITICAL  ECONOMY. 

recording  of  all  transfers  and  mortgages  of  land.  Such  a 
regulation  would  be  restrictive  upon  transfers.  Transfers 
would  require  to  be  made  in  writing  and  after  a  definite  form ; 
certain  words  must  be  used  to  make  the  instrument  effective  ; 
a  certain  delay  must  be  submitted  to  ;  an  office,  perhaps  at  a 
distance,  must  be  visited  ;  copies  must  be  made  ;  a  fee  given. 
Yet  who  does  not  know  that  a  regulation  of  this  character, 
though  in  name  restrictive,  would  in  fact  not  retard  but 
immensely  promote  the  transfer  of  real  estate.  For  uncer- 
tainty it  would  substitute  the  highest  assurance  ;  for  the  risk 
of  losing  the  whole  principal,  it  would  offer  a  clear  and  inde- 
feasible title,  which  would  repay,  many  times  over,  the  petty 
fee  and  the  trouble  required.  The  slow  and  costly  transfer 
of  real  estate  in  England,  where  no  such  system  exists,  in  com- 
parison with  the  cheap  and  easy  transfer  of  the  same  species 
of  property  in  the  United  States,  affords  a  measure  of  the 
force  of  this  cause. 

352.  Always  a  Practical  Question. — Perhaps  enough  has 
been  said  to  show  that  the  question  whether  a  certain  act, 
ordinance  .or  social  arrangement  retards  or  promotes  the  move- 
ment of  labor  to  its  market,  is  a  practical  question,  not  to  be 
determined  d  priori,  except  in  the  case  of  extreme  measures, 
but  to  be  considered  and  decided  with  reference  to  the  existing 
condition  of  industrial  society  and  to  the  actual  infirmities  or 
liabilities  of  the  laboring  population  to  which  it  was  intended 
to  apply.*     A  crutch  operates  only  by  restraint,  and  to  a  man 
of  sound  limbs  can  be  only  a  hindrance  ;  but  it  is  a  restraint 
which  corresponds  to  the  infirmity  of  a  cripple,  and  may  be 
the  only  means  of  enabling  him  to  walk,  or  even  of  keeping 
him  from  falling  hopelessly  to  the  ground. 

In  application  of  these  remarks,  a  brief  discussion  of  the 
influence  of  Trades  Unions  and  Strikes  upon  wages  and  upon 
the  condition  of  the  laboring  class,  will  be  found  in  Part  VI. 

353.  Wages  and  Public  Opinion. — When  the  writer  first 

"  The  outcome  of  the  inquiry  is  that  we  can  lay  down  no  hard  and 
fast  rules,  but  must  treat  every  case,  in  detail,  upon  its  merits.  Specific 
experience  is  our  best  guide,  or  even  express  experiment  where  possible.'* 
Jevons— "  The  State  in  Relation  to  Labor." 


PUBLIC  OPINION.  269 

ventured,  in  1874,  to  urge  that  respect  for  labor  and  sym- 
pathy with  the  laboring  class  might  become  a  force  in  determ- 
ining the  market  rate  of  wages,  he  was  greeted  with  derision. 
He  has  reason  to  believe  that  in  the  intervening  years  the 
arguments  then  presented  have  worked  their  way  toward  a 
conviction  of  the  public  mind  that  the  cause  thus  adduced  is 
not  an  unreality,  but  one  which  actually  operates  with  per- 
ceptible force  within  the  field  of  economics. 

Let  it  be  observed  that  what  is  claimed  is,  not  that  com- 
passion and  sympathy  will  induce  employers  here  and  there  to 
pay  wages  above  the  market  rate,  but  that  these  sentiments 
may  become  a  force  in  determining  what  the  market  rate 
shall  be. 

354.  An  Analogous  Case. — And,  in  the  first   place,  why 
this  incredulity  on  the  first  suggestion  of  the  subject  ?     Is  it 
not  true  that  sentiments  of  personal  kindness  a'nd  of  mutual 
respect  between  classes  of  the  community  have  had  a  very 
important  influence,  in  many  countries  (see  pars.  266-76),  in 
determining  the  rates  at  which  land  should  be  leased?     If 
public  opinion  may  be  a  very  powerful,  often  a  predominant, 
force  in  determining  the  rent  of  land,  why  should  we  not 
expect  that  it  would  have  at  least  an  appreciable  force  in 
determining  Avages  ? 

355.  The  Reason  of  the  Case. — But  let  us  leave  analogy, 
and  turn  to  the  reason  of  the  individual  case.     How  can  the 
sentiments  we  have  invoked  become  an  economic  force,  and 
thus  enter  into  the  distribution  of  wealth  between  employer 
and  employed? 

Let  us  recall  the  principle,  so  often  insisted  on,  that  it  is 
only  as  competition  is  perfect  that  the  wages  class  have  any 
security  that  they  will  receive  the  highest  remuneration  which 
the  existing  conditions  of  industry  will  permit.  In  the  failure 
of  competition,  they  may  be  pushed  down,  grade  by  grade,  in 
the  industrial  as  in  the  social  scale.  Let  us  recall,  moreover, 
that  the  failure  of  competition  may  be  due  to  moral  as  much 
as  to  physical  causes  ;  that  if  the  workman  from  any  cause 
does  not  pursue  his  interest,  he  loses  his  interest,  whether  he 
refrain  from  bodily  fear,  from  poverty,  from  ignorance,  from 


270  POLITICAL  ECONOMY. 

timidity  and  dread  of  censure,  or  from  the  effects  of  bad 
political  economy,  which  assures  him  that  if  he  does  not  seek 
his  interest  his  interest  will  seek  him. 

Now  I  ask,  can  it  be  doubtful  that  the  respect  and  sympathy 
of  the  community  must  strengthen  the  wages  class  in  this 
unceasing  struggle  ;  must  give  weight  and  force  to  all  their 
reasonable  demands  ;  must  make  them  more  resolute  and 
patient  in  resisting  encroachment ;  must  add  to  the  confidence 
with  which  each  individual  laborer  will  rely  on  the  good  faith 
of  those  who  are  joined  with  him  in  his  cause,  and  make  it 
harder  for  any  weak  or  doubtful  comrade  to  succumb  ? 

And,  on  the  other  hand,  will  not  the  consciousness  that  the 
whole  community  sympathize  with  the  efforts  of  labor  to 
advance  its  condition,  by  all  fair  means,  inevitably  weaken 
the  resistance  of  the  employing  class  *  to  claims  which  can  be 
conceded,  diminish  the  confidence  with  which  each  employer 
looks  to  his  fellows  to  hold  out  to  the  end,  and  make  it  easier 
for  the  less  resolute  to  retire  from  the  contest,  and  grant, 
amid  general  applause,  what  has  been  demanded  ? 

356.  The  Lamentable  Case  of  Hodge.— Let  us  apply  these 
principles  to  an  individual  case.  Hodge  thinks — Hodge  is  a 
plowman,  and  has  been  getting  twelve  shillings  a  week — 
that  he  ought  to  have  more  wages,  or,  rather,  for  Hodge 
would  scarcely  put  it  so  abruptly,  he  feels  that  it  is  dreadfully 
hard  to  live  on  twelve  shillings.  He  has  attended  a  lecture 
delivered  by  Mr.  Joseph  Arch  from  a  wagon  on  the  green. 
He  is  uneasy  and  wants  to  improve  his  condition.  So  far, 
then,  he  is  a  hopeful  subject,  economically.  The  desire  to 
improve  one's  condition  is  the  sine  qua  non  of  competition. 
Will  these  stirrings  of  industrial  ambition  come  to  any  thing  ? 
Will  the  discontented  plowman  seek  and  find  his  better 
market  ?  f  This  is  a  great  question,  for  upon  the  answer  to  it 

* ' '  Masters  are  always  and  everywhere  in  a  sort  of  tacit,  but  constant 
and  uniform,  combination  not  to  raise  the  wages  of  labor  above  their 
actual  rate." — Adam  Smith  :  "  Wealth  of  Nations." 

f  In  discussing  his  valuable  agricultural  statistics  before  the  London 
Statistical  Society,  Mr.  Fred.  Purdy  said:  "It  would  appear  that  no 
commodity  in  this  country  presents  so  great  a  variation  in  price,  at  one 


PUBLIC  OPINION.  271 

depends  the  future  of  Hodge,  and  perhaps  of  his  sons  and 
grandsons.  Let  the  Spectator  (August  4,  1872),  tell  how  he 
is  assisted  on  his  way  and  encouraged  in  his  weak,  ignorant, 
doubting  mind,  by  landlord,  bishop,  and  judge. 

"  The  man  has  been,  so  to  speak,  morally  whipped  for  six 
months.  He  has  found  no  friend  anywhere,  except  in  a  press 
he  can  neither  read  nor  understand.  The  duke  has  deprived 
him  of  his  allotment  ;  the  bishop  has  recommended  that  his 
instructor  should  be  ducked  ;  the  squire  has  threatened  him 
with  dismissal  in  winter  ;  the  magistrate  has  fined  him  for 
quitting  work,  which  is  just,  and  scolded  him  for  listening  to 
lectures,  which  is  tyranny  ;  the  mayor  at  Evesham  has  pro- 
hibited him  from  meeting  on  the  green  ;  and  the  lawyer — 
witness  a  recent  case  near  Chelmsford — has  told  him  that  any 
one  who  advises  and  helps  him  to  emigrate  4 s  a  hopeless 
rascal." 

Now  I  ask,  in  all  seriousness,  is  Hodge  quite  as  likely  to 
pursue  his  interest  and  persist  in  whatever  that  requires — 
— which,  be  it  observed,  is  no  other  than  what  the  interest  of 
the  whole  community  requires — as  if  his  social  superiors  were 
encouraging  him  to  better  his  fortune  if  he  finds  a  chance  ; 
as  if  the  shopkeeper  and  the  publican  and  the  lawyer  and  the 
rector  and  the  squire  were  not  all  ranged  against  him  ?  Is  it 
not  possible  that,  for  the  lack  of  a  little  fanning,  the  feeble 
flame  in  Hodge's  breast  may  die  out,  and  he,  giving  up  all 
thought  of  seeking  his  fortune  elsewhere,  return  to  his  fur- 
row, never  to  stray  from  it  again  ? 

time,  as  agricultural  labor,  taking  the  money  wages  of  the  men  as  the  best 
exponent  of  its  value.  A  laborer's  wages  in  Dorset  or  Devon  are  barely 
half  the  sum  given  for  similar  services  in  the  northern  parts  of  England." 
Among  the  causes  of  this  Mr.  Purdy  cites  "the  natural  vis  inertia  of 
the  class." 


272  POLITICAL  ECONOMY. 

CHAPTER  VII. 

TWO    OTHER   SHARES   IN   DISTRIBUTION. 

857.  We  have  discussed  the  distribution  of  the  product, 
under  the  entrepreneur  organization  of  industry.  We  have 
seen  that  this  product  is  divided  into  four  principal  shares, 
rent,  interest,  profits  and  wages,  corresponding  to  four  classes 
of  claimants.  We  have  now  to  inquire  what  becomes  of  cer- 
tain portions  of  the  product,  which  do  not  appear  to  go  into 
either  of  the  four  shares  enumerated.  And  first  of  the  amount 
taken  by  government. 

358.  Taxation.— There  has  long  been  a  difference  of  opin- 
ion among  economists,  whether  taxation  should  be  a  title  in 
distribution  or  in  consumption.  Prof.  Senior  held  to  the  lat- 
ter treatment  ;  Prof.  Jevons  favored  the  former. 

The  difference  is  just  this  :  Shall  we  regard  government  as 
a  fifth  original  claimant  upon  the  product  of  industry,  taking 
its  share  under  the  name  of  taxes,  as  the  land-owner  takes 
rent,  the  capitalist  interest,  the  employer  profits,  and  the 
laborer  wages  ;  or  shall  we  regard  the  product  as  divided  into 
four  shares,  out  of  each  of  which  is  paid,  as  one  form  of  the 
owner's  consumption  of  his  income,  a  sum,  greater  or  less,  for 
the  sustentation  of  government,  just  as  out  of  each  such 
share  are  paid  sums,  greater  or  less,  for  shelter,  food,  fuel, 
etc.? 

The  question  is  not  a  very  important  one  in  a  general 
treatise  on  Political  Economy,  and  neither  decision  solves 
all  the  difficulties  of  the  case,  since  the  functions  of  govern- 
ment are  so  various  and  so  widely  diverse. 

On  the  one  hand,  it  is  said  that  government  is  a  great  pro- 
ducer and  should  be  regarded  as  a  claimant  in  distribution, 
taking  its  share  under  the  name  of  taxes.  Government  builds 
and  keeps  in  repair  roads  and  bridges  and  breakwaters  and 
perhaps,  also,  canals  and  railways,  for  the  purposes  of  trade 
and  industry.  Government  maintains  a  constabulary  and 
court-houses  and  jails,  that  the  honest  and  industrious  may 
work  without  hindrance  or  even  fear  of  molestation.  Govern- 


TAXATION.  273 

ment  does  a  great  many  other  things  which  minister  directly 
to  the  creation  of  values,  vastly  increasing  the  amount  of  the 
product  over  what  it  would  have  been  without  the  interven- 
tion of  this  agency. 

On  the  other  hand,  it  is  said  that  a  great  part  of  what  gov- 
ernment does  has  not  the  production  of  wealth  as  its  primary 
object,  and  that  much  does  not  even  contribute  indirectly  to 
that  end,  as  in  the  case  of  the  vast  military  and  naval  expen- 
ditures of  the  nations  of  Europe,  which  have  for  their  pur- 
pose, not  the  preservation  of  civil  peace,  but  to  maintain  the 
existence  or  extend  the  power  of  nationalities  or  of  dynas- 
ties. Secondly,  whatever  the  objects  of  expenditure,  govern- 
ment does  not  obtain  its  revenue  through  the  agencies  of 
exchange,  but  by  forcible  collection,  men  contributing,  not 
because  government  has  made  it  worth  their  while  to  do  so, 
not  because  government  is  prepared  to  render  an  equivalent, 
but  simply  because  government  demands  the  contribution  and 
will  have  it.  For  these  reasons,  it  is  urged,  the  revenue  of 
the  State  should  not  be  treated  as  a  share  in  distribution,  but 
as  a  form  of  consumption. 

359.  As  has  been  said,  the  question  is  not  free  from  diffi- 
culties whatever  course  be  taken.  A  thoroughly  consistent 
treatment  of  the  subject  of  taxation  would  require  the  appear- 
ance of  this  title  in  more  than  one  department  of  political 
economy. 

(a.)  The  function  of  government  in  the  creation  of  values 
is  extensive  and  important,  under  the  modern  organization  of 
industrial  society.  The  building  and  maintenance  of  roads 
and  bridges,  of  breakwaters  and  lighthouses,  the  opening  of 
harbors,  and  the  improvement  of  rivers,  all  directed  towards 
a  larger  production  of  wealth,  form  a  notable  part  of  the 
industrial  agencies  of  all  progressive  communities.  These 
things,  if  done  on  the  initiative  and  at  the  expense  of  indi- 
viduals, who  looked  to  tolls,  fees,  and  dues  for  their  reimburse- 
ment, would  be  by  all  deemed  productive,  in  the  fullest  sense. 
They  are  not  less  so  when  done  by  government,  with  funds 
raised  by  taxation. 

(b.)  The  methods  of  taxation,  the  subjects  of  imposition, 


274  POLITICAL  ECONOMY. 

the  agencies  of  collection,  so  far  as  they  affect  the  ultimate 
incidence  of  taxation,  that  is,  so  far  as  they  determine  that 
the  pressure  of  taxation  shall  finally  rest  here  and  not  there, 
on  this  class  and  not  on  that,  fall  within  the  department  of 
Distribution.  The  questions,  e.  g.,  whether  a  tax  on  wages 
results  in  a  reduction  of  the  comforts,  luxuries,  and  necessa- 
ries enjoyed  by  the  laborer,  or  is,  in  the  end,  paid  by  the 
employer  ;  whether  a  tax  on  rent  rests  upon  the  landlord,  or  is 
by  him  shifted  upon  the  consumer  of  agricultural  produce  : 
these  and  the  like  are  questions  in  Distribution. 

(c.)  The  effects  of  the  expenditure  by  government  of  a  cer- 
tain amount  of  wealth,  as  contrasted  with  the  effects  of  the 
expenditure  of  the  same  amount  by  the  classes  who  paid  the 
taxes  that  put  the  treasury  in  funds,  belong  to  the  depart- 
ment of  Consumption. 

(f7.)  The  questions,  how  the  largest  amount  of  revenue  can 
be  secured  with  the  smallest  cost  of  collection  ;  how  the 
needed  revenue  can  be  procured  with  the  least  irritation  of  the 
public  mind  •  how  the  highest  assurance  can  be  obtained  as  to 
the  proper  custody  and  disbursement  of  funds  ;  these  and  the 
like  are  questions  in  fiscal  or  "  Cameralistic  "  science,  and  not 
in  economics  strictly  considered. 

(e.)  In  addition  to  the  question  (5),  what  is  the  ultimate 
incidence  of  any  existing  or  projected  body  of  taxes  :  who,  in 
in  the  last  resort  pays  them  ;  whose  sum  of  enjoyment  is 
actually  diminished  by  the  imposition,  we  have  a  question,  to 
which  writers  on  taxation  devote  a  large  part  of  their  space, 
viz.,  who  ought  to  pay  the  taxes  of  any  given  community  : 
what  classes  should  contribute  to  the  support  of  the  govern- 
ment, and  in  what  proportions  ?  This  is  purely  a  question  in 
political  equity. 

360.  The  foregoing  would  be  the  true  logical  treatment  of 
taxation.  In  an  elementary  treatise,  however,  I  do  not  deem 
it  worth  while  to  deal  so  elaborately  with  this  subject,  and 
will  postpone  to  Part  VI.  whatever  I  have  to  say  regarding 
taxation,  except  so  far  as  it  may  be  desirable  to  speak  of 
the  influence  of  government  expenditures  when  we  reach  the 
department  of  Consumption. 


SPECULA  TION.  275 

361.  The  Speculating  Class.— Incidental  to  all  the  pro- 
cesses of  production  and  exchange  is  the  chance  of  gain  oi 
loss  through  the  rise  or  fall  of  prices  during  the  interval 
between  buying  and  selling  ;  between  making  and  selling. 
This  gain  or  loss  may  be  slight,  in  any  given  case,  or  it  may 
be  considerable.  There  were  many  manufacturers  in  the 
United  States  who  made  fifty  or  a  hundred  thousand  dollars, 
clear,  by  the  rise  of  cotton,  on  their  hands,  in  1861  and  1862, 
and  this  without  intentionally  speculating  at  all,  but  simply 
through  holding  a  large  stock  for  the  purposes  of  legitimate 
manufacturing.  At  other  times,  the  daily,  weekly,  monthly 
fluctuations  of  prices  will  be  very  slight,  now  all  on  one  side,  for 
a  long  time;  now,  all  on  the  other  side;  then,  oscillating  back- 
wards and  forwards  across  what  we  may  call  the  average  price. 

To  a  certain  extent,  these  fluctuations  of.  price  may  be 
trusted  in  time  to  offset  each  other,  as  regards  any  individual 
merchant  or  manufacturer.  Yet  after  all  the  effect  of  this 
is  exhausted,  there  will  still  be  a  chance  of  gain  or  of  loss, 
which  may  be  so  considerable  as  to  become  an  important 
element  in  determining  the  fact  of  profits,  or  even  in  deciding 
the  solvency  of  the  merchant  or  manufacturer,  in  spite  of  the 
strictest  observance  of  the  rules  of  prudence,  and  in  spite  of 
the  greatest  energy  and  industry. 

Within  this  field,  so  far  as  the  great  body  of  business  men 
are  concerned,  fortune  holds  undisputed  sway.  They  lack 
the  faculty  to  discern  the  signs  of  the  future.  They  do  the 
best  they  can  to  produce  good  articles  cheap,  ( to  meet  the 
demands  of  the  public  as  to  fashions  and  styles,  to  keep 
expenses  down,  and  to  avoid  losses  by  bad  debts.  When  they 
have  done  this,  they  have  done  all  they  can  for  themselves  ; 
and  whatever  gains  or  losses  come  to  them  through  the  fluctu- 
ations of  the  market,  come  as  if  wholly  by  chance.  There 
are  other  men  who  have  a  rare  power  to  apprehend  in  advance 
the  movements  of  the  market.  It  is  always  found  that  when 
materials  begin  to  rise,  these  men  have  a  large  stock  on  hand. 
Let  a  disastrous  fall  occur,  these  men  are  never  caught  by  it. 
Whichever  way  the  market  turns,  it  seems  as  though  the  sole 
object  were  to  enrich  these  fortunate  beings. 


276  POLITICAL  ECONOMY. 

Of  course,  this  is  speculation  ;  yet  when  it  is  carried  on  only 
incidentally  to  a  legitimate  manufacturing  or  trading  business, 
we  do  not  call  these  men  speculators. 

362. In  every  progressive  commercial  community,  however, 

is  found  a  large  and  increasing  number  of  persons  who,  either 
possessing  this  faculty  of  discerning  the  signs  of  the  market, 
or  flattering  themselves  they  possess  it,  make  a  business  of 
buying  or  selling  according  to  their  anticipations  of  a  rise  or 
a  fall.  These  persons  are  not  manufacturers  ;  they  are  not 
merchants,  in  any  proper  sense  ;  they  do  not  buy  from  pro- 
ducers or  sell  to  consumers  ;  they  are  neither  importers,  job- 
bers, wholesalers  or  retailers  ;  they  have  perhaps  no  stores  or 
warehouses  or  stocks  of  goods  ;  possibly,  would  not  know  by 
sight  a  sample  of  the  commodities  they  deal  in.  They  simply 
bet  upon  the  market,  having  a  well  or  ill-founded  opinion  of 
their  own  shrewdness  and  coolness  in  doing  so.  They  may 
jose  a  fortune,  or  make  a  fortune. 

The  difference  between  the  two  kinds  of  speculation  may 
be  illustrated  as  follows  :  A  miller  who  grinds  two  hundred 
thousand  bushels  of  grain  a  year,  may,  if  he  have  this  pecu- 
liar kind  of  insight,  by  carefully  watching  the  market,  buy 
his  wheat  at  two  cents  a  bushel  less  than  he  would  have  had  to 
pay  for  it  had  he  bought  it  from  time  to  time  as  he  needed  it 
for  grinding.  This  is  speculating.  Moreover,  after  grinding, 
he  may  hold  the  flour  weeks,  or  months,  until  he  sees  his  chance, 
and  then,  by  going  into  the  market  at  the  right  moment,  he 
may  sell  it  at  ten  cents  a  barrel  more  than  if  he  had  sold  it  as 
it  was  made.  This  again  is  speculating.  Now  here  is  a 
saving  in  materials  of  $4,000,  and  a  gain  on  the  price  of  the 
product  of,  say,  $4,000.  After  making  allowance  for  interest 
on  the  extra  capital  required  to  "  carry "  the  wheat  and  the 
flour,  and  for  the  cost  of  storage,  the  addition  made  hereby  to 
the  miller's  profits  for  the  year  would  be  a  tidy  sum.  On  the 
other  hand,  a  corn-broker  may  buy  and  sell  twenty  thousand 
bushels  a  week,  buying  and  selling  on  all  sorts  of  time,  ten 
days,  twenty  days,  sixty  days,  six  months,  every  transaction 
being  a  bet  upon  the  price  of  corn  at  a  future  date.  When 
the  broker  buys,  he  bets  that  the  price  will  rise  ;  when  he  sells, 


SPECULATION.  277 

he  bets  that  it  will  fall.  The  men  from  whom  he  buys  have 
as  little  corn  as  he  has  ;  the  men  to  whom  he  sells  would  know 
as  little  as  he  what  to  do  with  actual  corn,  were  any  of  it  to 
come  in  their  way. 

Of  speculating  as  a  business,  two  things  may  be  said. 
First,  it  is  surprising  what  an  enormous  aggregate  of  trans- 
actions a  man  of  little  capital  and  no  brains  to  speak  of,  may 
conduct  in  the  course  of  his  life,  and  yet  neither  lose  nor  gain 
much  if  only  he  confines  himself  to  small  individual  opera- 
tions. Secondly,  not  less  surprising  are  the  gains  of  specula- 
tion when  conducted  by  a  real  master.  Every  year  an  appre- 
ciable portion  of  the  product  of  industry  passes  into  the 
possession  of  the  men  of  this  class.  In  every  highly  commer- 
cial country,  the  largest  fortunes  are  those  made  by  specula- 
tion. The  fortunes  so  made,  however,  are*  not  nearly  so 
numerous  as  those  made  by  trade  and  industry. 

363.  Speculation  is  not  wholly  without  its  advantages  to 
the  community.  If  corn  is  likely  to  be  scarce  and,  by  con- 
sequence, high,  four  months  hence,  the  man  who  now  begins 
to  buy  does,  in  so  far,  call  attention  to  that  probability. 
By  raising  the  price  he,  so  to  speak,  advertises  for  an 
increased  supply  to  be  brought  in  from  the  outside,  and  for 
greater  carefulness  in  husbanding  the  existing  stock.  If 
beef  is  likely  to  fall  in  price,  sixty  days  hence,  the  man  who 
now  sells  does  what  lies  in  him  to  give  notice  of  an  excess 
of  supply,  and  thus  affords  duller-witted  holders  opportunity 
to  get  rid  gradually  of  their  stock,  instead  of  encountering 
an  utter  breaking  down  of  the  market  a  little  later.  In  a 
word,  speculation  while  confined  within  moderate  limits  is 
the  agent  for  equalizing  supply  and  demand  and  rendering 
the  fluctuations  of  price  less  sudden  and  abrupt  than  they 
would  otherwise  be. 

There  are  causes,  however,  which  go  to  render  speculation 
extravagant,  carrying  it  beyond  all  reasonable  bounds,  multi- 
plying the  numbers  of  the  speculating  class  and  vastly 
increasing  their  gains,  at  the  expense  of  the  sober,  productive 
industries  of  a  country.  Foremost  among  these  is  a  vicious 
money  system.  The  extent  to  which  this  cause  engenders 


278  POLITICAL  ECONOMY. 

speculation  may  be  seen  in  the  history  of  the  "  Continental " 
money  of  the  American  revolution,  of  the  "  Assignats  "  of  the 
French  revolutionary  period,  and  of  the  "  Greenbacks "  of 
the  war  of  Secession.  With  prices  fluctuating  violently  and 
rapidly,  the  opportunities  for  acquiring  large  wealth  by  spec- 
ulation are  increased  ten-fold,  it  may  be  a  hundred-fold. 
This  is  too  much  for  human  nature :  too  much  for  honesty,  too 
much  for  prudence.  A  subtle  poison  runs  through  the  veins 
of  the  community,  turning  the  heart  to  crime  and  the  brain  to 
folly.  The  face  of  society  changes,  under  such  an  evil  pas- 
sion, as  suddenly  and  as  fearfully  as  does  the  face  of  a  man 
stricken  with  a  deadly  fever.  On  every  hand  breaches  of 
trust  testify  to  the  weakness  of  the  principles  of  virtue  under 
such  a  strain,  while  honest  and  discreet  modes  of  obtaining  a 
livelihood  are  disparaged  and  abandoned  for  those  which 
promise  quicker  and  larger,  even  if  illicit,  gains. 

364.  Loaded  Dice.— Of  much  speculation,  it  must  be  said 
that  it  is  wholly  beyond  economic  as  well  as  moral  sympathy. 
If  all  speculation  is  gambling,  this  is  gambling  with  the  dice 
loaded.  By  means  of  combinations  and  corners,  the  markets 
are  often  profoundly  influenced  in  order  to  produce  the  very 
fluctuations  on  which  the  grain  or  petroleum  or  stock  gam- 
blers have  made  their  bets.  The  mischiefs  suffered  by  trade 
and  industry,  originating  in  this  source,  are  monstrous,  even 
incalculable.  Whether  they  can  in  any  degree  be  repressed 
by  law,  is  a  grave  political  question,  with  which  we  are  not 
called  to  deal. 


CHAPTER  VIH. 

THE    REACTION    OF    DISTRIBUTION    UPON    PRODUCTION. 

365.  Actual  Production  Compared  with  Productive 
Capability.— In  a  previous  chapter  (Chapter  IV.,  Part  2),  we 
considered  the  elements  which  enter  into  the  productive  capabil- 
ity of  a  community,  and  indicated,  as  the  one  most  important 
question  with  which  political  economy  has  to  deal,  the 


PRODUCTIVE    CAPABILITY.  279 

inquiry,  why  it  is  that  the  actual  production  of  any 
community  falls  so  far  short  of  what  its  land  power,  its 
labor  power,  and  its  capital  power  are  jointly  competent  to 
effect. 

It  was  there  stated  that  only  when  we  should  have  passed 
through  all  the  departments  of  political  economy  should  we  be 
in  a  position  fully  to  answer  this  question. 

366.  Even    under  the  title,  Production,  however,  we  saw 
that  grave  liability  to  loss  of  force  inheres  in  the  industrial 
structure  of  society  especially  under  the  entrepreneur  system, 
by  which  the  labor  power  and  the  capital  power  of  the  com- 
munity become  committed  to  numerous  highly  technical  em- 
ployments, from  which  they  can  not  readily  release  themselves, 
and,  within  those    employments,  become    subjected    to   the 
direction  of  a    comparatively  small    number  of   individuals, 
whose  peculiarities  of  character,  of  habit,  of  station,  seriously 
modify  the  application  of  capital  and  labor  to  production  ; 
whose  mistaken  aims,  whose  erroneous  impulses,  may  divert 
these   forces  from  that  object  ;  whose  accidents  of  fortune 
may  impair  the  energy  of  the  industrial  movement  or  paralyze 
it  altogether. 

Again,  under  the  title,  Exchange,  we  saw  (Chapter  VII., 
Part  3)  that  still  further  and  even  more  grave  liabilities  to 
loss  of  industrial  force  inhere  in  that  commercial  system  which, 
by  separating  producer  and  consumer,  often  by  wide  inter- 
vals, sometimes  by  half  the  circumference  of  the  globe,  intro- 
duces the  opportunity  for  serious  misunderstandings  between 
these  two  classes  ;  misunderstandings  which,  when  intensified 
by  panic,  may  at  times  result  in  a  wide  and  long-continued 
suspension  of  productive  activity. 

367.  We  are  now  to  inquire  respecting  the  reaction  of  Dis- 
tribution upon  Production.     Is  here  a  liability  to  a  still  fur- 
ther loss  of  productive  force?     Discarding  the  terms  just  and 
unjust,  or  equitable  and  inequitable,  as  applied  to  the  distribu- 
tion of  wealth,  let  us  ask  whether  there  is  found,  in  a  division 
of  the  product  of  industry  according  to  certain  proportions,  be- 
tween the  several  parties  who  have  united  in  production,  a  suf- 
ficient cause  for  a  smaller  production  of  wealth  in  the  future 


280  POLITICAL    ECONOMY. 

than  would  result  from  a  division  of  the  same  product  between 
the  same  parties  in  different  proportions  ? 

I  think  we  have  at  various  points,  in  our  treatment  of  dis- 
tribution, caught  views  of  the  subject  which  must  have  satis- 
fied us  that  it  is  possible  that  the  product  of  industry,  in  any 
given  time  and  place,  may  be  so  divided  among  the  persons 
and  classes  of  persons  who  have  contributed  to  its  production, 
as  to  impair,  in  greater  or  less  measure,  the  productive  force 
up  to  that  time  existing  ;  perhaps,  even,  to  generate  influences 
which  shall  thereafter  act  with  increasing  violence  in  reducing 
the  productive  capability  of  the  community.  It  may  be  well, 
however,  to  stop  a  moment  at  this  point  and  to 'treat  distinctly 
and  separately  the  possible  reaction  of  distribution  upon 
production. 

368.  The  Landlord  and  the  Capitalist  have  an  Economic 
Advantage. — The  consideration  nearest  at  hand,  in  this  con- 
nection, would  seem  to  be  this,  viz.  :  that  among  the  four 
several  main  classes  of  producers,  there  are  wide  differences 
as  to  the  liability,  to  which  these  are  respectively  subject,  of 
being  so  cut  down  in  their  remuneration,  in  any  given  time 
and  place,  as  to  suffer  a  loss  of  force  thereby.  Two  of  the 
four  classes,  viz. :  landlords  and  capitalists,  clearly  occupy  a 
position  of  what  may  be  called  economic  advantage.  They 
have  at  their  command  certain  material  agencies  of  production 
by  withholding  the  use  of  which  they  can  inflict  a  relatively 
greater  injury  upon  others  than  they  would  themselves  suffer. 
In  the  expressive  phrase  of  children,  they  have  their  hands  on 
"  the  upper  end  of  the  stick."  They  are  in  a  position  to  make 
bargains  for  themselves  to  the  best  advantage. 

It  is  true  that,  unless  the  landlord  find  a  tenant,  he  can 
have  no  rent.  Yet  a  landlord  who  has  five  farms  to  let,  may 
put  a  great  pressure  upon  each  and  every  one  of  six  would-be 
tenants.  Moreover,  the  landlord  is,  in  general,  much  more 
wealthy  than  his  tenant,  and  is  thus  able  to  stand  longer  out 
of  his  remuneration,  in  case  there  comes  to  be  a  contest 
between  the  two  as  to  the  terms  on  which  the  land  shall  be 
rented.  I  might  add  that,  if  a  given  farm  be  not  rented  at 
all,  for  a  season,  it  may  not  be  altogether  a  loss  to  th'e  owner. 


ON    UNEQUAL    TERMS.  281 

The  orchard  will  bring  forth  its  crop  of  fruit  without  the 
intervention  of  a  tenant ;  the  grass  will  grow  as  thick  and 
high  as  usual,  on  the  "mowing"  ;  the  wood  lots  will  all  the 
time  be  acquiring  value  ;  the  arable  lands  will  have  a  rest 
which  it  might  possibly  have  been  good  policy  to  give  them, 
even  at  the  sacrifice  of  rent. 

Again  it  is  true  that,  unless  the  capitalist  lends  his  accu- 
mulations, he  can  not  acquire  interest ;  yet  his  loss  by  standing 
out  of  his  interest,  for  a  given  season,  may  be  far  less  than 
that  sustained  by  the  entrepreneur  through  losing  the  use  of 
the  capital  on  which  he  had  relied.  The  latter  person  may 
have  become  so  engaged  that  the  failure  to  effect  a  loan, 
while  it  cost  the  capitalist  but  one  and  a  half  per  cent,  dur- 
ing three  months,  might  require  the  entrepreneur  to  sell  goods 
at  a  great  sacrifice,  or  to  give  up  some  contract  which  prom- 
ised to  be  highly  advantageous. 

Enough,  perhaps,  has  been  said  to  justify  the  assertion  that 
the  capitalist  and  landlord  occupy  positions  of  economic 
advantage,  so  far,  at  least,  that  they  are  not  likely  to  suffer 
injury,  except  by  violence  or  legal  spoliation. 

It  is  another  question,  whether  the  economic  advantage 
enjoyed  by  these  two  classes  is  so  great  as  to  place  it  in  their 
power  to  do  an  injury  to  other  classes,  that  is,  to  cut  down 
the  shares  going  to  those  other  classes,  out  of  the  product  of" 
industry,  to  such  an  extent  as  to  impair  their  productive 
force,  and,  by  so  doing,  to  diminish  the  productive  capability 
of  the  community. 

368.  Shall  the  Capitalist  be  Hampered  ? — In  remarks  on 
Usury  Laws,  which  will  be  found  in  Part  VI.,  I  shall  express 
the  opinion  that,  in  certain  states  of  industrial  society,  the 
lending  class  have  so  great  an  advantage  over  the  borrowing 
class,  which,  in  such  states  of  society,  consists  generally  of 
distressed  persons,  as  practically  to  place  an  individual  bor- 
rower completely  at  the  mercy  of  the  usurer,  who  is  able  to- 
exact  a  rate  of  interest  which  is  not  only  irrespective  of  the 
economic  service  rendered  through  the  loan,  but  soon 
becomes  destructive  of  the  borrower's  credit  and  financial 
integrity,  reducing  him  speedily  and  certainly  to  bankruptcy 


282  POLITICAL  ECONOMY. 

and  perhaps  to  prison.  Under  conditions  like  these,  I  shall 
suggest  that  laws  limiting  the  rate  of  interest,  in  protection  of 
the  would-be  borrower,  may  not  be  as  unwise  and  as  unstates- 
manlike  as  they  have  generally  been  considered.  On  the 
other  hand,  I  shall  undertake  to  show,  that  in  advanced 
stages  of  industrial  society,  where  commerce  and  manufac- 
tures are  widely  extended  and  are  largely  carried  on  by  means 
of  borrowed  capital  ;  where,  therefore,  borrowers  are  no 
longer  distressed  persons  ;  but  the  most  active  and  prosper- 
ous members  of  the  community  borrow  largely,  freely  and  of 
choice,  as  a  matter  of  business  and  with  a  view  to  profit — in 
such  stages  of  society  laws  limiting  the  rate  of  interest  merely 
lay  an  extra  burden  upon  those  who  are  at  a  peculiar  diffi- 
culty in  borrowing.  In  the  absence  of  such  laws,  those  per- 
sons will  benefit  by  the  greater  plentifulness  of  capital,  the 
greater  ease  of  borrowing  and  the  consequently  lower  rate  of 
interest,  which,  in  general,  result  from  freedom  regarding  con- 
tracts for  loan,  in  a  commercial  or  manufacturing  community. 
The  business  classes,  active,  alert,  aggressive  in  competition, 
will  make  rates  of  interest  by  which  the  less  fortunate  mem- 
bers of  society  will  profit. 

370.  Shall  the  Landlord  be  Restrained  ? — In  the  chapter 
on  rent,  the  opinion  has  been  expressed  that,  in  a  community 
like  the  United  States,  or  Canada,  or  Australia,  the  landlord 
may  make  the  utmost  out  of  his  economic  position  without 
working  industrial  injury  to  the  tenant,  owing  to  the  mobility 
of  the  population,  their  readiness  and  resourcefulness,  their 
self-reliance  and  economic  aggressiveness.  In  countries  occu- 
pied by  populations  of  a  lower  industrial  character,  we  saw 
that,  unless  the  constraints  of  law  *  or  public  opinion  inter- 

*"  The  land  of  a  country  presents  conditions  which  separate  it  econom- 
ically from  the  great  mass  of  the  other  objects  of  wealth — conditions 
which,  if  they  do  not  absolutely  and  under  all  circumstances  impose 
upon  the  state  the  obligation  of  controlling  private  enterprise  in  dealing 
with  land,  at  least  explain  why  this  control  is,  in  certain  stages  of  social 
progress,  indispensable  ;  and  why,  in  fact,  it  has  been  constantly  put  in 
force  whenever  public  opinion  or  custom  has  not  been  strong  enough  to 
do  without  it."  .  .  .  .  "  And  not  merely  does  economic  science, 


ON   UNEQUAL    TERMS.  283 

vene,  the  vast  economic  advantage  possessed  by  the  landlord 
class,  as  against  a  peasantry  ignorant,  inert  and  perhaps  numer- 
ically in  excess,  is  likely  to  operate  with  increasing  severitv, 
to  impoverish  the  tenant  class  and  to  ultimately  reduce  their 
industrial  efficiency,  through  deprivation  of  necessary  clothing, 
food  and  shelter,  as  well  as  through  the  loss  of  hopefulness 
and  self-respect.  We  saw  that  this  might  go  on  until  almost 
the  last  stage  of  human  misery  should  be  reached,  as  in  Ire- 
land, during  the  period  before  the  great  famine. 

371.  InvidioTis  Treatment  of  the  Landlord  and  Capital- 
ist.— What  might  be  true  in  a  contrary  case  :  how  far  laws 
prohibiting  or  limiting  the  payment  of  rent  or  interest  framed* 
not  with  a  view  to  offset  certain  weaknesses  or  unfortunate 
liabilities  on  the  part  of  the  tenant  or  borrowing  class,  but 
drawn  in  a  spirit  hostile  to  the  owners  of  land  or  of  capital, 
and  designed  to  confiscate,  for  the  benefit  of  other  classes,  or 
of  the  community  as  a  whole,  some  part  or  all  of  what  would 
otherwise  be  paid  on  these  accounts  :  how  far  such  laws  might 
impair  the  productive  capability  of  the  community,  we  shall 
have  occasion  to  discuss  in  Part  VI.,  under  the  titles,  The 
Unearned  Increment  of  Land,  and  Usury  Laws.  I  will  so  far 
anticipate  that  discussion  as  to  say,  that,  while  in  commercial  or 
manufacturing  communities,  the  normal  effect  of  severe  restric- 
tions upon  the  payment  of  interest  is  at  once  to  diminish  the 
accumulation  of  capital  for  productive  uses,  and  to  prevent 
the  existing  body  of  capital  from  being  applied  where  it  will 
do  the  most  good,  such  laws  are,  in  such  communities,  so  easily 
evaded  that  their  practical  influence  is  not  very  great. 

Secondly,  the  effects  upon  the  cultivation  of  the  soil  of  a 
reduction  or  confiscation  of  rent,  by  legal  means,  are  not  so 
clear  as  to  be  beyond  dispute.  The  theory  which  underlies 
the  land  laws  of  nearly  all  states  that  can  be  called  civilized, 
is,  that  the  private  ownership  of  land,  with  the  incident  of  the 
acquisition  by  the  owner  of  an  "  unearned  increment "  due  to 

as  expounded  by  its  ablest  teachers,  dispose  of  d  priori  objections 
to  a  policy  of  intervention  with  regard  to  land,  it  even  furnishes, 
principles  fitted  to  inform  and  guide  such  a  policy,  in  a  positive  sense." 

—PROF.  JOHN  E.  CAIRXES. 


284  POLITICAL    ECONOMY, 

the  exertions  and  sacrifices  of  the  community  as  a  whole,  is 
essential  to  industrial  progress  ;  and  that  not  only  those  who 
are  so  fortunate  as  to  be  among  the  owners  of  land,  but  even 
those  who  have  been  born  into  the  world  without  a  title  to  a 
foot  of  soil,  are  benefited,  and  largely  benefited,  by  the  fact  of 
private  ownership.  At  the  same  time,  it  probably  would  not 
be  claimed  by  any  one  that  the  care  and  pains  of  the  individ- 
ual owner,  to  secure  the  proper  cultivation  and  preservation 
of  his  land,  are  proportional  to  his  share  of  the  product.  I  see 
no  reason  to  believe  that  a  reduction  of  rent  in  the  case  of  a 
given  tract  of  land,  through,  say,  some  new  economic  force, 
would  diminish  the  care  and  pains  taken  by  the  owner  in 
respect  to  his  property,  so  long  as  his  interest  remained  still 
considerable. 

There  have  of  late  years  appeared  certain  writers  who 
claim  that  private  ownership  is  not  necessary  to  the  fullest 
use  of  the  soil  which  forms  the  natural  endowment  of  any 
community.  At  least,  they  claim,  the  incident  of  an  "  unearned 
increment "  is  not  necessary.  They  assert  that  all  of  rent 
proper  (exclusive,  that  is,  of  the  returns  to  actual  investments 
of  capital,  in  improvements)  can  be  cut  away  without  impair- 
ing the  productive  uses  of  the  soil,  though  they  admit  that  so 
much  of  the  former  rent  might  advantageously  be  left  to  the 
so-called  owner  as  would  constitute  a  reasonable  commission 
to  him,  as  the  agent  of  society,  for  taking  all  needed  care  and 
pains  with  respect  to  the  land.  I  believe  this  view  to  be  alto- 
gether erroneous  ;  but  it  must  be  confessed  that  the  error  can 
not  be  shown  as  cleai'ly  and  strongly  as  in  the  case  of  the 
argument  for  prohibiting  interest.  I  shall  defer  to  Part  VI. 
whatever  I  may  have  to  say  further  on  this  subject. 

372.  Distribution  as  between  Employer  and  Laborer.— 
So  much  for  the  possible  action  of  distribution  upon  produc- 
tion, through  causes  operating  to  affect  the  shares  of  the 
product  of  industry  going,  as  rent  or  as  interest,  to  the  owner 
of  land  or  to  the  owner  of  capital. 

Of  much  more  practical  importance,  in  these  modern  times, 
is  the  influence  exerted  upon  future  production  by  the  division 
of  the  remaining  product  between  the  employing  and  the 


IV AGES  VS.    PROFITS.  285 

laboring  class.  I  shall  undertake  to  show  that  greatly  to 
change  the  proportions  existing  between  these  two  shares,  at 
any  time,  may  be  to  set  in  operation  causes  which  will  affect 
the  future  productive  capability  of  the  community,  it  may  be 
to  a  wide  extent,  it  may  be  through  long  periods  of  time. 

373.  Beating  Down  Wages. — The  economists  of  ten  or  fif- 
teen years  ago,  urged  very  strongly  that  a  reduction  of 
wages  could  not  prove  of  ultimate  injury  to  the  laboring 
class.  Thus  Prof.  Cairnes  says  : 

"  Supposing  a  group  of  employers  to  have  succeeded,  as  no 
doubt  would  be  perfectly  possible  for  them,  in  temporarily 
forcing  down  wages,  by  combination  in  a  particular  trade,  a 
portion  of  their  wealth  previously  invested  would  now  become 
free.  How  would  it  be  employed  ?  Unless  we  are  to  suppose 
the  character  of  a  large  section  of  the  community  to  be  sud- 
denly changed  in  a  leading  attribute,  the  wealth  so  with- 
drawn from  wages  would,  in  the  end,  and  before  long,  be 
restored  to  wages.  The  same  motives  which  led  to  its  invest- 
ment would  lead  to  its  re-investment,  and,  once  re-invested, 
the  interests  of  those  concerned  would  cause  it  to  be  distribu- 
ted amongst  the  several  elements  of  capital  in  the  same  pro- 
portion as  before.  In  this  way  covetousness  is  held  in  check 
by  covetousness,  and  the  desire  for  aggrandizement  sets  limits 
to  its  own  gratification."  And  in  a  similar  vein,  Prof.  Perry, 
of  our  own  country,  wrote  :  "  If  in  the  division  between 
profits  and  wages,  at  the  end  of  any  industrial  cycle,  profits 
get  more  than  their  due  share,  these  very  profits  will  wish  to 
become  capital,  and  will  thus  become  a  larger  demand  for 
labor,  and  the  next  wages  fund  will  be  larger  than  the 
last." 

374.  Had  we  already  discussed  the  principles  which  govern 
the  consumption  of  wealth,  it  would  be  easy  to  show  that 
Professors  Cairnes  and  Perry  are  mistaken  in  their  view  of  the 
necessary  effects  of  an  enlargement  of  profits  at  the  expense 
of  wages,  inasmuch  as  a  portion  of  such  enhanced  profits, 
instead  of  becoming  capital  (that  is,  wealth  devoted  to  repro- 
duction), might  become  fine  horses  and  houses,  fine  clothes 
and  opera  boxes  ;  while  another  portion  might  take  the  form 


286  POLITICAL    ECONOMY. 

of  coming  to  the  office  one  hour  later  in  the  morning  and 
going  home  one  hour  earlier  in  the  afternoon. 

But,  passing  by  this  point,  the  entire  argument  by  which 
the  English  and  American  economists  generally  have  sought 
to  establish  what  we  may  call  "  the  economic  indifference  of 
the  rate  of  profits,"  is  still  further  defective,  in  that  it  neglects 
those  very  important  considerations  which  relate  to  the  pos- 
sible degradation  of  labor  :  that  is,  the  reduction  of  the 
laborer  from  a  higher  to  a  lower  industrial  grade. 

375.  The  Degradation  of  Labor. — The  constant  imminence 
of  this  change,  the  smallness  of  the  causes — often  accidental 
in  origin  and  temporary  in  duration — which  may  produce  it, 
and  the  almost  irreparable  consequences  of  such  a  catastrophe, 
can  hardly.be  set  forth  too  strongly. 

The  assumption  which  underlies  the  statements  I  have 
quoted  is  that  the  laboring  classes,  while  suffering  economic 
injury  from  any  source,  will  themselves  remain  firm  in  their 
industrial  quality,  and  await  the  operation  of  the  restorative 
and  reparative  forces  which  shall,  in  time,  set  them  right. 

The  human  fact,  so  often  to  be  distinguished  from  the 
economic  assumption,  unmistakably  is  that  there  is,  on  the  part 
of  the  working  classes,  unless  protected  in  an  unusual  degree 
by  political  franchises,  by  the  influence  of  public  education, 
and  by  self-respect  and  social  ambition,  a  fatal  facility  in  sub- 
mitting to  industrial  injuries,  which  too  often  does  not  allow 
time  for  the  operation  of  the  beneficent  principles  of  relief  and 
restoration.  The  industrial  opportunity  comes  around  again, 
it  may  be,  but  it  does  not  find  the  same  man  it  left  :  he  is  no 
longer  capable  of  rendering  the  same  service  ;  perhaps  the 
wages  he  now  receives  are  quite  as  much  as  he  earns. 

376.  Let  us  consider  the  possible  effects  of  a  considerable 
reduction  of  wages.  If  the  amount  previously  received  had 
allowed  comforts  and  luxuries,  and  left  a  margin  for  saving, 
the  reduction  would  probably  be  resented,  in  the  sense  that 
population  would  be  reduced  by  migration  or  by  abstinence 
from  propagation,  until  the  former  wages  should  be,  if  pos- 
sible, restored.  But  if  the  previous  wages  had  been  barely 
sufficient  to  furnish  the  necessaries  of  life,  and  especially  if  the 


THE   DEGRADATION   OF  LABOR.  287 

body  of  laborers  were  ignorant  and  unambitious,  the  falling 
off  in  the  quantity  and  quality  of  food  and  clothing  and  in 
the  convenience  and  healthfulness  of  the  shelter  enjoyed 
would  at  once  affect  the  efficiency  of  the  individual  laborer. 

With  less  food,  which  is  the  fuel  of  the  human  machine, 
less  force  would  be  generated  ;  with  less  clothing,  more  force 
would  be  wasted  by  cold  ;  with  scantier  and  meaner  quarters, 
fouler  air  and  diminished  access  to  the  light  would  prevent  the 
food  from  being  fully  digested  in  the  stomach  and  the  blood 
from  being  duly  oxydized  in  the  lungs,  would  lower  the 
general  tone  of  the  system  and  expose  the  subject  increasingly 
to  the  ravages  of  disease.  In  all  these  ways  the  laborer  would 
become  less  efficient,  simply  through  the  reduction  of  his 
wages. 

377.  The  economists  assert  that  whatever  is  taken  from 
wages  will  increase  capital,  and  hence  quicke"n  employment, 
and  that  this,  in  turn,  will  heighten  wages.  But  we  see  that 
it  is  possible  that  what  is  taken  from  wages  no  man  shall  gain  : 
it  may  be  lost  to  the  laborer  and  to  the  world.  Now,  so  far 
as  strictly  economic  forces  are  concerned,  where  enters  the 
restorative  principle  ?  The  employer  is  not  getting  excessive 
profits,  to  be  expended  subsequently  in  wages  ;  the  laborer  is 
not  under-paid  ;  he  earns  now  what  he  gets  no  better  than  he 
formerly  did  his  higher  wages. 

This  image  of  the  degraded  laborer  is  not  a  fanciful  one. 
There  are  in  Europe  great  bodies  of  population  which  have 
-come  in  just  this  way  to  be  pauperized  and  brutalized, 
weakened  and  diseased  by  under-feeding  and  foul  air,  hopeless 
and  lost  to  all  self-respect,  so  that  they  can  scarcely  be  said  to 
•desire  any  better  condition,  and  still  bringing  children  into 
the  world  to  fill  their  miserable  places  in  garrets  and  cellars, 
and  in  time  in  the  wards  of  the  workhouse. 

If  such  an  injury  as  has  been  indicated  may  be  suffered  in 
respect  to  the  physical  powers  of  the  laborer  through  the 
reduction  of  wages,  quite  as  speedily  may  his  usefulness  be 
impaired  through  the  moral  effects  of  such  a  calamity.  Just 
as  the  greatest  possibilities  of  industrial  efficiency  lie  in  the 
creation  of  hopefulness,  self-respect  and  social  ambition,  so 


288  POLITICAL   ECONOMY. 

the  greatest  possibilities  of  loss  lie  in  the  discouragement  or 
destruction  of  these  qualities.  We  have  seen  through  what 
a  scale  the  laborer  may  rise  in  his  progress  to  productive  power. 
By  looking  back,  we  see  through  what  spaces  he  may  fall 
under  the  force  of  purely  industrial  disasters. 

378.  The  Argument  from  Self-Interest. — But  we  may  ;it 
this  point  be  called  upon  to  meet  an  objection,  founded  upon 
the  assumed  sufficiency  of  the  principle  of  self-interest.  How, 
it  may  be  asked,  is  it  possible  that  employers  shall  fail  to  pay 
wages  which  will  allow  their  laborers  a  liberal  sustenance,  if, 
indeed,  it  be  for  their  own  advantage  to  do  so  ;  if,  by  that 
means,  the  economic  efficiency  of  the  laborers  will  be  thereby 
increased  ? 

I  answer,  first,  that  the  assumption  of  the  sufficiency  of  self  - 
interest  to  secure  wise  action  is  grotesquely  wide  of  the  mis- 
erable truth  regarding  human  nature,  to  whatever  department 
of  activity  we  have  reference.  Mankind,  always  less  than 
wise  and  too  often  foolish  to  the  point  of  stupidity,  on  the  one 
hand,  or  of  fanaticism  on  the  other,  whether  in  politics  or  in 
domestic  life,  in  hygiene  or  in  religion,  do  not  all  at  once 
become  wise  when  industrial  concerns  are  in  question. 

The  argument  for  feeding  a  hired  laborer  liberally,  that  he 
may  work  efficiently,  applies  with  equal  force  to  the  maintenance 
of  a  slave  ;  yet  we  know  too  well  that  everywhere  the  lust  of 
immediate  gain  has  always  despoiled  the  slave  of  a  part,  often 
a  large  part,  of  the  food  and  clothing  necessary  to  his  highest 
efficiency.  The  same  argument  would  apply  to  the  case  of 
live-stock.  Yet  it  is  almost  impossible,  by  any  amount  of 
preaching  and  teaching,  by  any  number  of  fairs  and  premiums, 
to  keep  a  body  of  farmers  up  to  the  point  of  feeding  cattle 
well  and  treating  them  well.  The  world  over,  the  rule 
regarding  the  care  of  live-stock  is  niggardliness  of  expendi- 
ture, working  deep  and  lasting  prejudice  to  production. 

The  foregoing  would  be  a  sufficient  answer  to  the  objection 
I  have  anticipated.  On  every  hand  we  see  true  self-interest 
sacrificed  to  greed  :  why  should  it  not  be  so  in  the  case  of  the 
wages  of  hired  labor  ? 

But  another  and  additional  reason  appears.     It  is  that  the 


ATTACKS    UPON  PROFITS.  289 

employer  has  none  of  that  security  which  the  owner  of  stock 
or  the  master  of  a  slave  possesses,  that  what  goes  in  food  shall 
come  back  in  work.  A  man  buying  an  underfed  slave  or  ox 
knows  that  when  he  shall  have  brought  his  property  into  good 
condition  the  advantage  will  all  be  his  ;  but  the  free  laborer 
may  at  any  time  carry  to  another  employer  whatever  of  bone  and 
sinew  and  nervous  energy  he  may  have  gained  through  liberal 
subsistence.  There  is,  as  yet,  no  law  which  gives  the 
employer  compensation  for  "  unexhausted  improvements  "  in 
the  person  of  his  hired  man. 

379.  Beating  Down  Profits. — The  foregoing  comprises  all 
I  should  three  or  four  years  ago  have  deemed  it  necessary  to 
say,  regarding  the  division  of  the  product  of  industry  between 
employers  and  employed,  as  affecting  the  future  productive 
capability  of  a  community.  The  normal  position  of  the  em- 
ployer is  so  clearly  one  of  advantage,  in  competition  with  the 
employed,  that  it  would  have  seemed  scarcely  worth  while  to 
inquire  into  the  industrial  effects  of  a  pressure  put  upon  the 
employing  class  so  severe  as  to  reduce  the  profits  of  business 
below  the  point  required  to  secure  the  fullest  employment  of 
the  land  power,  labor  power  and  capital  power  of  the  commu- 
nity.* Even  the  introduction  of  Trade  Unions  into  the  field 
of  industry  can  scarcely  be  said  to  have  done  more  than  offset 


*  Oddly  enough,  many  economists  who  have  been  serenely  confident 
that  any  possible  reduction  of  wages,  under  pressure  from  the  employing 
class,  would  not  injure  the  body  of  laborers,  holding  that  whatever  might 
thus  for  the  time  be  taken  from  wages  must  infallibly,  and  before  long, 
be  restored  to  wages,  [see  remarks  of  Profs.  Cairnes  and  Perry  above], 
have  manifested  the  greatest  anxiety  lest  profits  should  be  unduly 
reduced  through  the  encroachments  of  wages.  Not  a  few  of  these  writers 
have  formally  warned  the  laboring  class  against  demanding  higher 
wages,  lest  they  should  so  reduce  the  profits  of  business  as  to  impair  or 
destroy  the  employer's  interest  in  production.  It  is  difficult  to  see  the 
consistency  of  these  two  opinions.  If  what  is  unduly  taken  from  wages, 
by  pressure  from  the  employing  class,  is  certain  to  be  restored  to  wages, 
why  may  it  not  be  that  whatever  is  unduly  taken  from  profits,  by  pres- 
sure from  the  laboring  class,  shall,  in  the  end,  be  restored  to  profits  ?  If 
the  economic  harmonies  exist,  they  surely  must  "  work  both  ways." 


290  POLITICAL   ECONOMY. 

the  naturally  great  advantage  enjoyed  by  the  employing  class, 
in  competition  for  the  product  of  industry. 

Within  the  last  few  years,  however,  attempts  have  been 
made,  among  us  in  the  United  States,  to  establish  confedera- 
tions of  labor,  more  far-reaching,  more  thoroughly  organized, 
more  authoritatively  controlled,  than  the  now  familiar  Trade 
Unions.  Should  the  avowed  purposes  of  those  most  conspicu- 
ously engaged  in  these  efforts  be  accomplished,  in  whole  or  in 
any  considerable  degree,  it  would  appear  that  the  economic 
advantage  might  not  only  be  shifted  from  the  employing  to 
the  laboring  class,  but  might  there  be  so  much  enhanced  as  to 
require  us  to  contemplate  an  extensive  reduction  of  profits  as 
a  possible  cause  of  impairment  to  the  productive  capability  of 
the  community.  The  further  consideration  of  this  topic  will 
be  postponed  to  Part  VI.,  where  we  shall  speak  of  the  Knights 
of  Labor. 

380.  The  Doctrine  of  Laissez  Paire.— If  such  liabilities  to 
an  impairment  of  the  productive  capability  of  the  community 
lie  in  the  distribution  of  wealth,  what  becomes  of  the  char- 
acteristic doctrine  of  the  so-called  Manchester  School,  laissez 
faire:  hands  off  :  leave  economic  forces  to  work,  alike 
unaided  and  unhindered,  in  the  assurance  that  the  inter- 
ests of  individuals  will  be  found  to  harmonize  so  far  with  the 
interests  of  the  community  as  to  secure  the  highest  welfare  of 
each  and  of  all  ? 

On  this  point  my  views  can  not  be  expressed  so  well  by 
phrases  of  my  own  devising,  as  in  the  language  of  an  eminent 
English  economist. 

"  There  is  no  evidence,"  says  Prof.  Cairnes,  "  either  in  what 
we  know  of  the  conduct  of  men,  in  the  present  stage  of  their 
development,  or  yet  in  the  large  experience  we  have  had  of 
the  working  of  laissez  faire,  to  warrant  the  assumption  that 
lies  at  the  root  of  this  doctrine. 

"  Human  beings  know  and  follow  their  interests  according 
to  their  lights  and  dispositions  ;  but  not  necessarily,  nor  in 
practice  always,  in  that  sense  in  which  the  interest  of  the 
individual  is  co-incident  with  that  of  others  and  of  the  whole. 
It  follows  that  there  is  no  security  that  the  economic  phenom- 


"  LAISSEZ  FAIRE."  291 

ena  of  society,  as  at  present  constituted,  will  arrange  them- 
selves spontaneously  in  the  way  which  is  most  for  the  com- 
mon good. 

"In  other  words,  laissezfaire  falls  to  the  ground  as  a  sci- 
entific doctrine.  I  say  as  a  scientific  doctrine  ;  for  let  us  be 
careful  not  to  overstep  the  limits  of  our  argument.  It  is  one 
thing  to  repudiate  the  scientific  authority  of  laissez  faire, 
freedom  of  contract,  and  so  forth  ;  it  is  a  totally  different 
thing  to  set  up  the  opposite  principle  of  state  control,  the  doc- 
trine of  paternal  government.  For  my  part,  I  accept  neither 
one  doctrine  nor  the  other  ;  and,  as  a  practical  rule,  I  hold 
laissezfaire  to  be  incomparably  the  safer  guide.  Only  let  us 
remember  that  it  is  a  practical  rule,  and  not  a  doctrine  of 
science  ;  a  rule  in  the  main  sound,  but,  like  most  other  sound 
practical  rules,  liable  to  numerous  exceptions  ;  above  all,  a 
rule  which  must  never,  for  a  moment,  be  allowed  to  stand  in 
the  way  of  the  candid  consideration  cf  any  promising  pro- 
posal of  social  or  industrial  reform." 


PART  V.— CONSUMPTION. 


CHAPTER  I. 

SUBSISTENCE  :    POPULATION. 

381.  What  is  Consumption? — By  the  term  consumption, 
in  economics,  we  express  the  use  made  of  wealth.  This  does 
not  necessarily  imply  the  destruction  of  the  form  or  material 
of  the  commodities  so  used,  or  even  the  exhaustion  of  the 
value  which  had  at  some  time  been  imparted  to  them.  In 
general,  however,  the  use  of  wealth  involves,  in  a  greater  or 
less  degree,  loss  of  substance  and  change  of  form,  with  a 
decline,  rapid  or  slow,  in  that  power  in  exchange  which  we 
call  value. 

"  That  almost  all  that  is  produced  is  destroyed,  is  true  ;  but 
we  can  not  admit  that  it  is  produced  for  the  purpose  of  being 
destroyed.  It  is  produced  for  the  purpose  of  being  made  use 
of.  Its  destruction  is  an  incident  to  its  use  ;  not  only  not 
intended,  but,  as  far  as  possible,  avoided."*  That  destruction 
may,  in  exceptional  cases,  be  practically  avoided  altogether. 
An  intaglio  is  consumed,  in  the  economic  sense,  when  it  finds 
its  place  in  the  British  Museum,  where  it  may  remain  unim- 
paired through  uncounted  centuries.  Certain  hewn  stones 
were  consumed,  in  the  economic  sense,  twenty-five  hundred 
years  ago,  when  they  were  lifted  into  their  place  in  a  Roman 
aqueduct.  As  hewn  stones,  simply,  they  had  been  commodi- 
ties, having  a  variety  of  possible  uses.  They  might  have  been 
wrought  into  the  fortifications  of  the  city,  or  used  in  building 

*Prof.  N.  W.  Senior. 


THE   CONSUMPTION  OF    WEALTH.  293;, 

a  temple,  or  an  amphitheater,  or  a  private  palace.  But  when 
once  they  were  applied  to  a  definite  use,  they  were,  in  the 
economic  sense,  consumed.  They  ceased  to  be  merely  hewn 
stones,  to  be  sold  by  themselves,  and  subject  indifferently  to 
many  uses  ;  they  became  inseparable  parts  of  something  else. 

Iron  ore  is  consumed,  i.  e.,  applied  to  the  end  in  view  in  its 
production,  when  thrown  into  the  furnace,  and  here  takes 
place  almost  instantaneously  not  only  a  great  chemical  change, 
but  a  complete  loss  of  form.  The  iron  bar  or  plate  is  in  turn 
consumed,  when  it  is  fitted  into  a  bridge,  without  undergoing 
any  chemical  or  mechanical  change  at  the  time,  to  be  thereaf- 
ter subject  only  to  slow  agencies  of  decay  in  the  atmosphere, 
or  to  effects  of  attrition  which,  from  one  year  to  another, 
would  be  imperceptible. 

382.  Consumption  as  a  Department  of  Political  Econ- 
omy.—Why  should  the  economist  interest  himself,  at  all,  in 
questions  relating  to  consumption?  Why,  having  traced 
wealth  through  its  production,  distribution  and  exchange, 
should  he  not  leave  it  in  the  hands  of  the  consumer  without 
further  inquiry,  satisfied  with  its  having  reached  the  end  for 
which  it  was  created  ?  So  have  many,  indeed  most,  econo- 
mists dealt  with  the  uses  of  wealth,  declining  to  recognize 
consumption  as  a  department  of  political  economy. 

It  is,  of  course,  competent  to  any  writer  on  economics  thus 
to  limit  the  scope  of  his  inquiry  ;  but  I  can  not  but  deem  it  a 
subject  of  much  regret  that  the  fascinations  of  the  mathemat- 
ical treatment  of  economic  questions,  and  the  ambition  to  make 
political  economy  an  exact  science,  should  have  led  to  the 
practical  excision  of  the  whole  department  of  consumption 
from  so  many  recent  works.  For,  after  all,  the  chief  interest 
of  political  economy  to  the  ordinary  reader,  its  chief  value  to 
the  student  of  history,  must  be  in  the  explanation  it  affords  of 
the  advance  or  the  decline  in  the  productive  power  of  nations 
and  communities  ;  and  it  is  only  in  the  consumption  of  wealth 
that  we  find  the  reasons  for  the  rise  of  some  and  the  fall  of 
others,  from  age  to  age.*  It  is  in  the  use  made  of  the  exist- 

*  The  late  Prof.  Jevons,  in  the  introduction  to  his  "Theory  of  Political 
Economy,"  after  noting  the  close  analogy  to  the  science  of  Statical 


294  POLITICAL  ECONOMY. 

ing  body  of  wealth  that  the  wealth  of  the  next  generation  is 
determined.  It  matters  far  less  for  the  future  greatness  of  a 
nation  what  is  the  sum  of  its  wealth  to-day,  than  what  are  the 
habits  of  its  people  in  the  daily  consumption  of  that  wealth  ; 
to  what  uses  those  means  are  devoted.  That  wealth  may  be 
applied  to  ends  which  inspire  social  ambition,  which  restrict 
population  within  limits  consistent  with  a  high  per  capita  pro- 
duction, which  increase  the  efficiency  of  the  laborer  and  sup- 
ply instrumentalities  for  rendering  his  labor  still  more  produc- 
tive, or  it  may  be  applied  to  ends  which  allow  the  increase  of 
population  in  the  degree  that  involves  poverty,  squalor  and 
disease  ;  to  ends  which  debauch  the  laborer  morally  and 
physically,  striking  at  both  his  power  and  his  disposition  to 
work  hard  and  continuously.  When  it  is  remembered  that 
statisticians  estimate  the  wealth  of  England  at  only  five  or  six 
times  the  amount  of  its  annual  production,  it  will  appear  of 
how  much  more  importance,  in  the  large  view  of  a  nation's 
future,  is  the  direction  of  its  expenditures  than  the  absolute 
amount  of  its  accumulations,  at  any  given  time.  The  com- 
pleteness with  which  the  French  people,  through  their  tem- 
perance, frugality  and  industry,  combined  with  the  strict 
repression  of  population,  made  up  in  a  few  years  the  terrific 
losses  and  fines  of  the  German  war,  affords  a  very  striking 
illustration  of  the  virtue  there  is  in  the  labor  power  of  a 
country  to  replace  its  capital,  if  only  a  right  consumption  of 
the  annual  product  be  assured. 

383.  Subsistence. — The  primary  use  of  wealth  is  for  sub- 
sistence. In  the  earliest  stages  of  human  society,  man,  like 
the  lower  animals,  had  only  one  want.  Like  the  lower  ani- 
mals, he  gathered  his  food,  whether  fish  or  flesh  or  nuts  or 
berries,  where  he  chanced  to  find  it,  and  ate  it  without  prep- 
aration. Long,  however,  before  he  began  to  cultivate  food, 
even  in  the  simplest  way,  he  began  to  cook  it.  The  discovery 

Mechanics  presented  by  the  Theory  of  Economy  proposed  by  him,  sig- 
nificantly says  :  "  But  I  believe  that  Dynamical  branches  of  the  science 
of  Economy  may  remain  to  be  developed,  on  the  consideration  of  which 
I  have  not  at  all  entered."  Elsewhere  Prof.  Jevons  says  :  "  We,  first  of 
all,  need  a  theory  of  the  Consumption  of  Wealth." 


MAN'S  EARLIEST    WANTS.  295 

of  fire  and  its  application  to  the  preparation  of  food,  is  made 
by  some  writers  upon  primitive  society  to  mark  the  boundary 
between  the  purely  savage  and  the  barbarous  condition. 

Man  is  the  only  animal  that  has  attained  the  capability  of 
preparing  food  for  consumption.  All  other  species  are  con- 
tent with  the  animal  or  vegetable  material.  Man,  even  in  the 
lowest  of  existent  communities,  demands  for  his  subsistence 
something  more  than  the  raw  material.  It  must  be  prepared 
or  manufactured  for  his  uses,  though  this  may  be  by  very  rude 
and  simple  processes. 

384.  Clothing  and  Shelter. — At  what  stage  in  the  evolu- 
tion of  the  human  kind,  clothing  and  shelter,  other  than  that 
furnished  by  the  casual  cave  or  by  the  foliage  of  the  forest, 
became  a  requirement  of  the  theretofore  naked  man,  exposed 
unsheltered  to  the  storm,  we  need  not  inquire.  At  moderate 
elevations  throughout  the  zone  in  which  the  human  race  orig- 
inated, that  requirement  has  never  been  onerous.  The 
amount  of  effort  there  involved  in  providing  the  bamboo  hut, 
the  wigwam  of  poles  and  boughs,  or  the  tent  of  skins,  for 
protection  against  the  rainy  season,  and  in  preparing  the 
scanty  garment  of  pelts  or  of  cloth,  demanded  by  comfort  or 
by  the  awakened  sense  of  decency,  has  never  been  great. 
Food  still  remains,  in  those  regions,  the  one  great  requirement 
of  human  existence. 

When,  however,  mankind  spread  over  higher  altitudes  or 
zones  further  removed  from  the  equator,  as  tribes  were  driven 
up  the  mountain  sides  by  victorious  enemies,  or  were  crowded 
toward  the  arctic  or  antarctic  circles  by  the  increasing  scarcity 
of  the  casual  food  of  the  chase,  of  the  fishery,  or  of  the  natural 
forest,  the  requirement  of  clothing,  of  shelter,  and  last  of  all, 
of  fuel,  came  to  be  of  increasing  urgency  and  severity. 
Within  certain  limits,  however,  clothing,  shelter  and  fuel  are, 
in  the  higher  latitudes,  interchangeable  with  food,  in  the 
human  economy.  One  of  the  prime  purposes  of  food  being 
there  the  maintenance  of  the  warmth  of  the  body,  that  occa- 
sion may,  in  part,  be  served  indifferently  by  a  certain  amoun'o 
of  food,  or  by  clothing  of  a  certain  thickness  applied  to  the 
frame,  or  by  the  combustion  of  a  certain  amount  of  fuel 


296  POLITICAL  ECONOMY. 

within  an  inclosure,  or  of  a  larger  amount  of  fuel  in  the  open 
air. 

And  here,  as  on  the  ten  thousand  occasions  of  a  higher 
civilization,  it  is  found  that  the  greatest  economy  resides  in 
the  largest  capitalization  of  labor.  A  dress  of  skins,  which 
may  have  cost  the  effort  of  a  week,  will,  during  the  time  it 
lasts,  more  than  replace,  for  purposes  of  warmth,  food  which 
would  have  required  the  efforts  of  many  months.  A  hut  which 
may  have  been  a  season  in  building,  may  save  more  in  the 
food  required  for  health  and  comfort,  during  the  lifetime  of 
the  builder,  than  could  have  been  obtained  by  the  hunting  or 
the  fishing  of  years. 

385.  Now  let  us  suppose  that,  within  some  geographical 
division,  the  conditions  of  production  are  such  that  each  adult 
male  is  able  by  steady  labor  to  secure  for  himself  consider- 
ably more,  in  the  way  of  food,  clothing,  shelter  and  fuel,  than 
is  required  for  his  own   subsistence  in  health  and  strength  to 
labor   and   in  physical   comfort,  meaning,  by   this   last,  not 
much,  only  a  freedom  from  pain  and  discomfort.     It  does  not 
matter,  whether  the  laboring  population  under  consideration  ob- 
tain the  means  of  subsistence,  as  hunters,  as  fishermen,  as  herds- 
men, or  as  agriculturists.     The  question  we  have  to  ask  is, 
what  will  these  laborers  do  with   the  wealth  they  produce, 
after  the  strict  needs  of  subsistence  are  met ;  how  will  they 
consume  it  ? 

386.  The  Wife. — In  the  first  instance,  it  may  be  assumed 
that   each   laborer  will  undertake  the  support  of   one   adult 
female,  and  this,  not  out  of  charity,  or  compassion,  not  by  the 
force  of  any  legal  arrangement,  not  with  any  reference  to  the 
continuance    of    the   tribe,    but   in   obedience   to    a   natural 
instinct  second  only,  in  the  demand  it  makes  upon  men,  to 
the  craving  for  food.     The  latter  satisfied,  the  former  asserts 
itself,  irrepressibly,  among  all  classes  and  conditions  of  men, 
in  all  states  of  human  society. 

The  woman  with  whose  subsistence  the  laborer's  income  or 
annual  production  of  wealth  thus  becomes  charged,  will,  in 
greater  or  less  degree,  add  to  the  means  of  the  family  thus 
formed.  She  will  spin  and  weave,  fashioning  the  fibrous 


THE    WIFE.  297 

materials  which  the  man  has  gathered,  into  garments, 
blankets,  and  nets.  She  will,  in  various  ways,  prepare  the 
flesh,  the  fish,  or  the  vegetable  food,  which  the  head  of  the 
family  supplies,  rendering  it  more  palatable,  more  nutritious, 
more  wholesome,  or  less  perishable,  according  to  the  nature 
of  the  subject  matter.  She  will  bring  water  from  the  spring 
or  brook.  She  will  keep  the  hut  or  tent  in  a  certain  order 
and  decency. 

While,  thus,  the  female,  in  an  early  stage  of  industrial 
society,  adds  something  to  the  family  means,  both  by  what 
she  makes  and  by  what  she  saves  from  waste,  we  may  assume 
that,  speaking  broadly,  she  does  not  produce  as  much  as  she 
consumes.  The  margin  of  subsistence  which  the  hunter,  the 
fisherman,  the  herdsman,  the  tiller  of  the  soil  enjoys,  is  smaller 
after  he  has  taken  a  wife  than  before.  Nor  is  .the  contribu- 
tion made  by  the  wife  to  the  joint  revenue  of  the  family  in 
any  degree  a  determining  cause  of  the  formation  of  the 
family. 

We  have,  thus,  the  two  earliest  forms  of  the  consumption 
of  wealth,  first,  in  the  sustentation  of  the  individual  laborer, 
and  secondly,  in  the  maintenance  of  the  wife.  Let  us  sup- 
pose, for  the  further  purposes  of  this  discussion,  that  the  pro- 
duction by  the  head  of  the  family,  increased  by  the  wife's 
contribution,  amounts  to  three  and  a  half  times  what  is  neces- 
sary to  support  one  adult  person  in  health  and  strength  to 
labor,  and  in  physical  comfort,  according  to  the  definition  of 
that  term  already  given.  We  have,  then,  to  be  deducted  from 
this  amount  the  subsistence  of  both  husband  and  wife. 

387.  The  Child.— Now,  we  have  to  note  the  third  great 
form  of  consumption,  in  the  order  of  nature.  The  association 
of  husband  and  wife  is  followed,  in  the  vast  majority  of  cases, 
by  offspring.  Races  that  are  comparatively  infertile,  for  what 
reason  physiology  can  not  say  with  confidence,  are  known  to 
history,  and  some  such  are  to-day  in  occupation  of  portions  of 
the  earth's  surface  ;  while,  among  prolific  races,  are  here  and 
there  found  individuals  who  are  sterile,  from  causes  which 
physiology  is  equally  unprepared  to  explain.  The  proportion 
of  these  exceptional  cases  among  laboring  populations  is  very 


298  POLITICAL  ECONOMY. 

small.  We  may,  therefore,  disregard  them  in  our  argu- 
ment. 

The  appearance  of  the  child  makes  a  new  and  imperative 
demand  upon  the  revenue  of  the  family.  In  the  immediate 
instance,  it  diminishes  the  ability  of  the  mother  to  render  her 
accustomed  services  in  the  household  and  reduces  her  contri- 
bution to  the  joint  income.  Then  and  afterwards,  for  a  long 
time,  it  causes  a  steady  draft  upon  the  resources  of  the  father 
in  the  way  of  food  and  clothing. 

The  demand  thus  made  upon  the  family  income  is,  within  the 
limits  of  the  father's  ability,  met,  in  general,  fully  and  even 
cheerfully.  It  is  not  in  obedience  to  the  requirements  of  law. 
or  because  of  any  patriotic  desire  to  make  good  the  numbers 
of  the  community,  or  contribute  to  the  strength  of  the  state, 
or,  on  the  other  hand,  from  the  consideration  that  these  babes 
may,  after  the  lapse  of  years,  themselves  become  producers, 
and  possibly,  in  time,  become  his  support  in  his  old  age,  that 
the  father  unquestioningly  gives  up  to  his  children  that  mar- 
gin of  subsistence,  which,  as  a  married  man  without  children, 
he  might  have  enjoyed.  It  is  in  obedience  to  a  purely  indi- 
vidual feeling,  of  an  instinctive  character,  so  generally  planted 
in  the  human  mind  that,  in  spite  of  instances  of  parental  neg- 
lect or  cruelty,  we  may  speak  of  it  as  universal. 

Here  we  have  the  third  form  in  which  wealth  is  consumed. 
It  will  be  remembered  that,  thus  far,  we  have  supposed  noth- 
ing to  be  done  with  the  wealth  produced  in  the  primitive  com- 
munity which  has  for  its  object  display,  luxury,  or  even  the 
gratification  of  appetite  beyond  the  actual  requirements  of 
subsistence.  That  wealth  is  applied  to  the  support,  first  of  the 
productive  laborer,  secondly,  of  the  wife,  taken  in  obedience 
to  a  natural  craving  which  may  be  termed  a  universal  instinct 
of  mankind,  and,  thirdly,  of  the  children  springing  from  that 
union. 

388.  Children  in  Excess. — Let  us  suppose  that,  with  three 
children,  of  various  ages,  the  subsistence  which  can  be  provided 
by  the  head  of  the  family  is  fully  taken  up.  These  five  persons, 
male  and  female,  old  and  young,  consume  all  that  can  be  pro- 
duced, which  we  have  assumed  to  be  equal  to  the  sustentation 


THE    CHILD. 


299 


of  three  and  a  half  adults.  If,  now,  other  children  are  to 
appear  to  claim  a  support  at  the  hands  of  the  husband  and 
father,  what  wrill  be  the  result  ?  Clearly,  a  reduction  in  the 
standard  of  living.  There  will  no  longer  be  food,  clothing, 
shelter  and  fuel  adequate  to  maintain  each  and  every  member 
in  health  and  strength,  and  without  pain  or  discomfort  result- 
ing from  deprivation  of  things  needful.  The  new-comers 
will,  indeed,  under  the  impulse  of  the  parental  instinct,  be 
admitted  to  an  equal  participation  in  the  family  income  ;  but 
the  share  of  each  member  of  the  family  will  be  diminished.  The 
pinch  may  come  earliest  and  most  severely  at  one  point  rather 
than  another  ;  food  may  be  denied,  or  fuel,  or  clothing,  or 
shelter,  according  to  circumstances;  but,  in  one  way  or  another, 
something  less  than  what  is  necessary  to  maintain  the  mem- 
bers of  the  family  in  health  and  strength  and  cemfort,  is  sup- 
plied. Of  this  the  effects  may  be  grouped  in  three  forms  :  first, 
the  reduction  of  vital  force  and  labor  power  ;  secondlv,  I  lie 
diminution,  perhaps  the  disappearance,  of  the  subsistence 
fund  heretofore  laid  up  against  the  occurrence  of  bad  seasons 
or  the  disability  of  the  head  of  the  family  through  accident  or 
sickness,  thirdly,  the  generation  of  infirmities  and  diseases  of 
a  transmissible  character. 

389.    The  Effort  of  Nature  to  Eestore  Equilibrium. — Now 

let  us,  further,  suppose  this  increase  in  the  number  of  children 
beyond  the  limits  of  subsistence  to  have  taken  place  uniformly 
throughout  the  tribe,  but  to  have  taken  place  once  for  all, 
not  from  a  persistent  but  from  a  purely  transient  cause :  will 
there  be  any  effort  of  nature  to  restore  the  condition  of  gen- 
eral health,  strength  and  comfort,  which  has  been  for  the  time 
lost  ? 

It  is,  indeed,  true  that  nature  will  make  an  effort,  first, 
through  disease,  which  will  have  a  greater  destructive  power 
upon  an  ill-sustained  than  upon  a  well -sustained  community, 
especially  in  the  case  of  children  and  of  the  aged  ;  secondly, 
through  an  impairment  of  the  reproductive  power  of  the  adult; 
and,  thirdly,  through  famine  breaking  upon  a  population  whose 
store  laid  up  against  drought  or  flood  or  fire  or  the  ravages  of 
insects,  has  been,  once  for  all,  eaten  up.  But  this  effort  of 


300  POLITICAL   ECONOMY. 

nature  will  be  unequal  to  the  work  to  be  done.  The  history 
of  a  thousand  tribes  shows  that  there  is  not  sufficient  force  in 
famine  or  disease  to  prevent  the  permanent  reduction  of  a 
community,  through  excess  of  numbers,  from  a  condition  of 
physical  well-being  to  one  of  inadequate  subsistence  with 
consequent  impairment  of  vital  force  and  labor  power. 

390.  Solidarity  of  the  Family.— Of  late  years,  with  the 
growing  interest  in  biological  investigation,  there  has  been 
manifested  a  disposition,  in  certain  quai*ters,  to  glorify  priva- 
tion and  famine,  as  agents  in  the  uplifting  of  the  human  con- 
dition, the  doctrine  of  the  "  survival  of  the  fittest  "  being 
applied  to  societies  of  men  without  due  consideration  of  a  most 
important  difference  existing  between  men  and  other  species 
of  animals. 

It  is  the  solidarity  of  the  family  which  prevents- the  law  of 
the  survival  of  the  fittest  from  exerting  that  power  in  raising 
the  standard  of  size  and  strength  and  functional  vigor  among 
men,  which  it  exerts  throughout  the  vegetable  and  the  animal 
kingdoms,  generally.  In  the  vegetable  kingdom  I  suppose 
there  are  no  traces  of  this  solidarity  of  parent  and  offspring, 
although  not  being  a  botanist  I  can  not  speak  with  assurance. 
In  the  animal  kingdom,  exclusive  of  man,  the  solidarity  of  the 
family  exists,  indeed,  but  to  a  limited  extent  only,  and  for  a 
brief  period.  The  mother  protects  and  nourishes  her  offspring 
most  sedulously  and  devotedly  ;  drains  her  life-blood  for  its 
support,  and  will  die  in  its  defense  ;  but,  in  general,  when  the 
offspring  is  weaned  the  connection  is  broken.  The  lives 
become  separated.  The  young  must  thereafter  be  their  own 
providers  and  protectors.  Mother  and  child  become  com- 
petitors for  food  in  the  same  field  or  forest  ;  may  even  tear 
and  kill  one  another  in  the  struggle  for  existence.  Thus  the 
principle  of  survival  obtains  leave  to  operate.  If  the  con- 
ditions of  existence  become  hard,  if  subsistence  is  inadequate, 
the  weak,  the  deformed,  the  sick,  are  run  over,  trampled  on, 
killed  out,  while  the  fittest  survive,  acquire  all  the  nourishment 
which  is  to  be  had,  grow  continually  larger  and  stronger, 
breed  only  among  themselves,  and  thus  the  standard  of  size 
and  strength  rises  from  generation  to  generation. 


SOLIDARITY  OF    THE  FAMILY.  301 

"With  man,  however,  the  conditions  of  the  struggle  for  exis- 
tence are  greatly  changed.  Generally  speaking,  that  struggle 
is  between  families  as  units,  not  between  individuals.  Within 
the  family,  the  young  and  old,  the  weak  and  the  strong,  male 
and  female,  are  bound  together  by  natural  instincts,  which  are 
too  strong  for  pain,  for  hunger,  for  death  itself.  If  want  or 
famine  pinch,  all  suffer  together.  So  far  as  any  preference  is 
given,  it  is  to  the  younger  and  the  weaker.  The  parent  denies 
himself  that  the  cries  of  the  child  may  be  hushed.  If  one 
member  of  the  family  fall  sick,  instead  of  being  neglected,  or 
even  trampled  on,  as  among  the  lower  orders  of  animals,  he 
commands  the  tenderest  care  of  all.  This,  clearly,  is  not  a 
condition  under  which  the  principle  of  "  the  survival  of  the 
fittest,"  however  fierce  may  be  "the  struggle  for  existence," 
can  operate  among  men,  to  raise  the  standard  of  size  and 
strength  and  functional  vigor.  Instead  of  the* natural  elimina- 
tion of  the  weakest  and  the  worst,  it  is  here  the  best  who, 
from  sexual  or  parental  love,  bare  their  breasts  to  receive  the 
blows  of  fortune. 

391.  The  Capabilities  of  the  Procreative  Force. — We 
have  thus  far  inquired  respecting  the  effects  of  an  increase  of 
the  number  of  children  in  any  community  beyond  the  limits 
of  subsistence,  assuming  for  the  moment  the  increase  to  be 
•due  to  purely  transient  and  adventitious  causes.  How  is  it  as 
to  the  degree  of  activity  and  persistence  in  the  procreative 
force,  in  the  presence  of  a  threatened  reduction  in  the  stand- 
ard of  living  below  the  point  of  health,  strength  and  freedom 
from  discomfort  ? 

But,  first,  of  the  reproductive  capability  of  mankind.  It  is 
evident  that  the  mere  fact  of  children  being  born  to  parents 
does  not,  of  itself,  insure  or  threaten  any  increase  of  numbers 
from  generation  to  generation.  With  the  limits  set  to  human 
life,  reproduction  in  a  cei'tain  degree  may  be  only  sufficient  to 
make  good  the  loss  by  death.  It  may  be  even  less  than  is 
necessary  to  this  end.  Hence  we  must  inquire  what  is  the 
normal  relation  between  births  and  deaths. 

In  his  celebrated  treatise  on  "Population,"  Mr.  Malthus 
assumed  a  birth  rate  sufficient  to  yield,  in  spite  of  occasional 


302  POLITICAL  ECONOMY. 

celibacy  and  exceptional  sterility,  in  excess  of  four  children  to 
a  family.  There  is  reason  to  believe  that  in  any  colony  of 
European  blood,  planted  on  new  land,  of  reasonably  salubrious 
quality,  within  the  temperate  zone,  this  rate  of  increase  would 
be  reached,  and,  in  the  majority  of  cases,  exceeded.  That 
rate  of  reproduction  alone,  however,  would  be  sufficient  to 
secure  an  appreciable  increase  of  each  generation  over  the  one 
preceding,  were  the  facts  of  infant  and  of  adult  mortality  but 
moderately  favorable  to  the  growth  of  population. 

392.  Geometrical  Progression.— Now,  if  we  may  assume 
for  the  members  of  successive  generations  an  undiminished 
degree  of  fecundity,  we  have  here  all  the  conditions  of  a 
geometrical  progression.  And  the  possibilities  of  geometrical 
progression,  when  persisted  in  for  a  long  time,  become  simply 
tremendous,  whether  in  population,  in  wealth,  or  in  any  other 
direction. 

What  is  the    characteristic  of  geometrical,   as  contrasted 
with  ai'ithmetical,  increase  ?     It  is  that,  in  the  former  case, 
the  increase  itself  increases :    the  fecundity   of  the    original 
stock  is  transmitted  through  all  that  is  successively  derived 
from  it.     Thus,  to  take  a  series  of  ten  terms,  we  might  have 
Arithmetical  :  2,  4,  6,  8,  10,  12,  14,  16,  18,  20. 
Geometrical :  2,  4,  8,  16,  32,  64,  128,  256,  512,  1024. 

Here,  in  the  arithmetical  series,  the  difference  between  the 
ninth  and  tenth  terms  is  the  same  as  that  between  the  first 
and  second,  viz.,  2.  In  the  geometrical  series,  the  difference 
between  the  first  and  second  terms  is,  also,  2  ;  while,  between 
the  ninth  and  the  tenth,  it  is  512.  It  would  require  more  than 
five  hundred  terms  to  carry  the  arithmetical  series  to  the 
point  which,  in  the  geometrical  series,  is  reached  in  ten  terms. 
It  would  require  more  than  a  million  terms  to  carry  the 
former  series  to  the  point  reached  by  the  latter  in  twenty-one 
terms  ;  a  thousand  million  terms  to  carry  the  former  series  to 
the  point  reached  by  the  latter  in  thirty-one  terms. 

These  tremendous  leaps  in  the  geometrical  series,  are  due  to 
the  fact  that  the  increase  between  the  first  and  second  terms- 
becomes  itself  the  cause  of  a  proportional  increase  between  the 
second  and  third  terms  ;  which  increase,  in  turn,  becomes  the 


GEOMETRIC  INCREASE.  303 

cause  of  corresponding  increase  between  the  third  and  fourth, 
and  so  on  to  the  end.  Whereas,  of  the  arithmetical  series  we 
may  say  that  the  entire  increase  comes  out  of  the  original 
stock,  which  continues  to  propagate  at  a  constant  rate,  while 
all  the  successive  increments  so  produced  remain  barren. 

393.  Population  Increases  by  Geometrical  Progression. 
— Now  it  is  according  to  the  former  and  not  the  latter  law,  that 
population  increases ;  and  as  we  said,  the  consequences  of  a 
persistence   in    a  geometrical    ratio,    through   a  considerable 
period  of  time,  are  simply  tremendous.     "  The  elephant,"  says 
Mr.  Darwin,  "is  reckoned  the  slowest  breeder  of  all  known 
animals,  and  I  have  taken  some  pains  to  estimate  its  probable 
minimum  rate  of  natural  increase.     It  will  be  safest  to  assume 
that  it  begins  breeding  when  thirty  years  old,  and  goes  on 
breeding  till  ninety  years,  bringing  forth  six  young  in  the 
interval,  and  surviving  till  one  hundred  years  old  ;  if  this  be 
so,  after  a  period  of  from  seven  hundred  and  forty  to  seven 
hundred  and  fifty  years,  there  would  be  alive  nearly  nineteen 
million  elephants  descended  from  the  first  pair  /" 

Man,  though  a  slow  breeder,  as  compared  with  many  of  the 
lower  animals,  has  a  rate  of  reproduction  far  exceeding  that  of 
the  elephant.  Population  has  shown  the  capability,  over  a 
vast  extent  of  territory,  on  more  than  one  continent  and 
through  considerable  periods  of  time,  of  doubling  once  in 
twenty-five  years.  With  this  capability  we  may  say  that,  if 
"  neither  evil,  nor  the  fear  of  evil  "  checked  the  population  of 
the  United  States,  it  would,  in  a  century  and  a-half,  amount  to 
three  thousand  two  hundred  millions.  Of  course  this  consum- 
mation could  never  be  reached.  Such  a  population  would  be 
impossible  under  the  conditions  of  human  existence. 

394.  The   Persistence  of  the  Procreative   Force.— Such 
being  the  capabilities  of  the  procreative  force,  when  operating 
unrestrained,  let  us  inquire  what  virtue  there  is  in  the  fear  of  a 
reduction  of  the  standard  of  living  below  the  point  of  health 
and  physical  comfort,  to  check  population  at  that  line. 

It  is  commonly  assumed,  in  discussions  relating  to  wages, 
that  the  laboring  class  will  more  and  more  withhold  their  in- 
crease as  the  conditions  of  life  become  harder  and  harder  ;  and 


304  POLITICAL  ECONOMY. 

that  any  economic  injuries  which  they  may  suffer,  from  what- 
ever cause,  will,  in  the  order  of  nature,  be  in  this  way  repaired. 
Instead  of  it  being  true,  however,  that  the  laboring  class  tend 
thus  to  resist  and  resent  any  lowering  of  the  standard  of  sub- 
sistence, the  fact  is  that  never  is  the  procreative  force  more 
active  than  when  the  conditions  of  life  become  meager  and 
squalid  ;  when  the  reserve  of  the  summer  against  the  winter, 
of  the  good  year  against  the  bad,  is  swept  away  by  the  clamor- 
ous necessities  of  to-day  ;  when  alike  enjoyment  of  the  present 
and  hope  for  the  future  are  at  their  lowest  point.  Never  had  the 
marrying  age  been  earlier,  or  christenings  more  frequent  in 
Ireland  than  when,  just  upon  the  verge  of  the  great  famine, 
Earl  Devon's  Commission,  in  1844,  thus  described  the  condi- 
tion of  the  peasantry  :  "  In  many  districts,  their  daily  food  is 
the  potato  ;  their  only  beverage,  water  ;  their  cabins  are  seldom 
a  protection  against  the  weather  ;  a  bed  or  a  blanket  is  a  rare 
luxury  ;  and,  in  nearly  all,'their  pig  and  manure  heap  constitute 
their  only  property." 

The  state  of  the  population  of  India  and  China  affords  a 
conclusive  proof  that  there  is  not  sufficient  virtue  in  economic 
forces  to  keep  population  above  the  plane  of  extreme  misery, 
if  once  it  falls  below  the  plane  of  comfort  and  decency.  On 
the  contrary,  a  moral  weakness  or  recklessness  is  induced 
which  tends  strongly  and  swiftly  to  carry  population  to  the 
point  of  industrial  distress-  Then,  indeed,  famine  makes  its 
appearance,  as  periodically  in  India,  to  set  bounds  to  increase 
of  numbers  ;  but,  for  the  reasons  that  have  been  stated,  this 
force  does  not  operate,  as  in  the  animal  kingdom  exclusive  of 
man,  to  cut  off  only  the  least  active,  aggressive,  intelligent,  or 
self-reliant.  The  effect  of  famine,  and  of  the  diseases  gener- 
ated by  famine,  operating  upon  population  across  the  barrier 
imposed  by  the  solidarity  of  the  family,  is  to  lower  the  physical 
tone,  to  taint  the  blood,  and  weaken  the  will-power  of  the 
entire  body,  making  it  increasingly  difficult,  from  generation 
to  generation,  to  restore  the  lost  conditions  of  economic  well- 
being. 


AN  ASCENDING  SCALE.  305 

CHAPTER  II. 

THE    APPEARANCE    OF   NEW   ECONOMIC    WANTS. 

395.  An  Ascending  Scale  of  Personal  Consumption. — We 
have  thus  far  dwelt  on  the  effects  of  an  increase  of  numbers 
beyond  the  limits  of  subsistence,  as  the  latter  are  determined 
by  the  law  of  diminishing  returns  in  agriculture.  We  have 
seen,  that  since  the  procreative  force  increases  rather  than  dimin- 
inishes  in  the  face  of  poverty  and  squalor,  there  is  no  nat- 
ural resting-place  for  population,  if  once  it  passes  below  the 
plane  of  ample  subsistence,  until  it  reaches  the  point  where  it 
meets  the  "  positive  checks  "  of  famine  and  disease  and,  it  may 
be  added,  of  war.*  This  principle  of  population,  to  which  we 
give  the  name,  Malthusianism,  was  first  clearly,  enunciated  and 
fully  illustrated  by  Mr.  Malthas,  in  the  last  year  of  the  last 
century,  although  intimated  in  the  writings  of  earlier  econo- 
mists, especially  of  the  Italian  Ortes. 

Let  us  now  consider  the  relations  of  subsistence  and  popula- 
tion, on  an  ascending  scale  of  personal  consumption.  We  have 
seen  that  population  will  go  on  increasing  as  fast  and  as  far  as 
food  is  provided  to  support  it,  all  increase  of  wealth  surely 
taking  the  form  of  an  increase  of  numbers,  unless  other  and 
more  imperative  demands  are  made  upon  the  income  of  the 
family.  But  let  us  suppose  that,  at  the  point  where  a  compe- 
tent subsistence  is  provided  to  maintain  the  whole  population 
in  health  and  strength  to  labor,  and  in  freedom  from  all  dis- 
comfort resulting  from  privation  of  things  absolutely  neces- 
sary, the  want  of  something  beyond  this  comes  to  be  strongly 
felt  by  the  individual  members  of  the  community.! 

*"  It  is  impossible,"  says  Senior,  "that  a  positive  check  so  goading 
and  remorseless  as  famine,  should  prevail  without  bringing  in  her  train 
all  the  others.  Pestilence  is  her  uniform  companion,  and  murder  and 
war  are  her  followers." 

f  "  The  much  greater  number  and  the  longer  continuance  of  his  wants," 
says  Prof.  Roscher,  "  are  amongst  the  most  striking  differences  between 
man  and  the  brute.  While  the  lower  animals  have  no  wants  but  neces- 


306  POLITICAL  ECONOMY. 

396.  Diversity  of  Early  Economic  Desires.— What  that 
want  may  be  does  not  matter  for  the  purposes  of  the  present 
discussion  ;  and,  indeed,  it  would  not  be  likely  to  be  the  same  in 
the  case  of  all  communities.  In  one,  the  first  want  felt,  after 
the  absolute  requirements  for  the  support  of  life  and  laboring 
power  are  satisfied,  is  of  ornament  and  decoration.  Even  when 
men  are  hardly  covered  from  the  cold  and  scantily  nourished, 
the  passion  for  display  makes  its  appearance  in  forms  that  are 
ludicrous  enough  to  the  eye  of  the  civilized  man,  but  which 
have  a  most  serious  meaning  to  the  barbarian  and  engross  his 
faculties  as  completely  as  widely  different  objects  do  the  fac- 
ilities of  the  Parisian.  In  another  community,  the  first  want 
felt  after  the  claims  of  immediate  bare  subsistence  are  met,  is 
of  a  store  for  the  future  and  a  provision  against  the  caprices 
of  the  seasons  and  the  casualties  of  life.  Just  as  the  ant — the 
ant  of  fable,  at  least,  if  not  of  the  naturalist — differs  from  the 
butterfly,  so  have  certain  tribes  of  men,  in  the  earliest  condi- 
tion to  which  we  can  trace  them,  differed  from  others  in  this 
respect  of  care  for  the  coming  time.  The  first  want  emerging 
in  the  life  of  another  community  may  be  of  wealth  to  be 
expended  in  worship  and  in  honor  of  the  national  or  local  deity. 
Millions  of  men  may  consent  to  live  squalidly  that  a  few 
temples  may  shine  like  the  sun,  their  altars  smoke  with  unend- 
ing sacrifices,  their  priests  walk  resplendent  with  embroidered 
and  jeweled  vestments.  In  still  other  communities,  the  new 
want  may  take  the  form  of  a  love,  no  longer  of  ornament, 
but  of  comely  dress,  or  of  desire  for  a  diversified  diet,  or  of  a 
taste  for  leisure,  or  of  a  craving  for  some  costly  drug  or  drink, 
like  the  opium  of  the  East  Indian  and  the  Chinaman  or  the 
fire-water  of  the  North  American  Indian. 

Writers  on  economics  have,  indeed,  endeavored  to  establish 
something  like  an  order  of  natural  succession  for  the  various 
wants  emerging  in  human  experience  :  thus  Prof.  Senior  says 

sities,  and  while  their  aggregate  wants,  even  in  the  longest  series  of  gen- 
erations, admit  of  no  qualitative  increase,the  circle  of  man's  wants  is  sus- 
ceptible of  indefinite  extension.  And,  indeed,  every  advance  in  culture 
made  by  man  finds  expression  in  an  increase  in  the  number  and  in  the 
keenness  of  his  rational  wants." 


CHECKS    TO  POPULATION.  307 

that  man's  "  first  object  is  to  vary  his  food  ;  "  "  the  next  desire 
is  variety  of  dress  ; "  "  last  comes  the  desire  to  build,  to  orna- 
ment and  to  furnish  ; "  I  deem  it,  however,  more  consonant 
with  what  is  known  of  communities  having  only  a  small  mar- 
gin of  living,  to  hold  that  the  appearance  of  economic  desires, 
beyond  the  need  of  bare  subsistence,  is  governed  by  the  moral 
and  social  characteristics  of  each  race  or  tribe  of  men. 

397.  Economic  Wants  Antagonize  the  Procreative  Force. 
—Whatever  be  the  passion  or  desire  which  is  first  developed 
in  the  mind  of  any  community,  it  makes  a  demand  upon  the 
existing  body  of  goods,  or  upon  the  current  production  of 
wealth,  which  at  once  antagonizes  the  strong  and  urgent  dis- 
position, which  has  been  indicated,  to  the  consumption  of 
wealth  in  the  support  of  an  increasing  population.  The  newly 
awakened  passion  or  desire  can  not  be  gratified  out  of  the 
existing  fund  of  wealth,  unless  the  procreative  force  receive  a 
check.  Whether  this  shall  be  done  or  not,  is  a  question  upon 
the  answer  to  which  depends  the  whole  economic  future  of 
the  community. 

Any  economic  want  may  act  in  restraint  of  population  in 
one  or  more  of  three  ways  :  first,  by  diminishing  the  numbers 
of  the  marrying  class,  inducing  celibacy  among  those  who  do 
not  find  the  way  to  obtain  an  income  adequate  to  the  support 
of  a  family  ;  secondly,  by  procrastinating  marriage  ;  and 
thirdly,  by  diminishing  the  birth-rate  within  the  married  state. 
The  forces  which  operate  in  restraint  of  population  may  take 
any  one  of  these  three  ways,  or  take  them  all,  in  which  latter 
case  the  reduction  of  the  ratio  of  increase  will  be  very  marked. 
If  for  example,  the  number  of  married  pairs  in  a  given  com- 
munity were  brought  down  from  100  to  80,  by  the  spread  of 
celibacy  ;  if,  through  later  marriages,  the  child-bearing  period 
for  each  married  pair  were  reduced  from  twenty  years  to  fif- 
teen, and  if  the  interval  between  births  were  extended  from 
two  years  to  three,  the  number  of  children  born  under  the  lat- 
ter state  of  things  would  be,  to  the  number  born  under  the 
former  state,  as  40  to  100. 

398.  A  Diversified  Diet. — Whatever  be  the  want  most 
commonly  felt,  after  the  requirements  of  mere  subsistence  are 


308  POLITICAL  ECONOMY. 

met,  there  can,  I  think,  be  no  question  that  the  want  which 
has  been  efficient  on  the  largest  scale,  at  once  in  promoting 
labor  for  its  gratification,  and  in  restricting  the  increase  of 
population,  is  the  craving  for  a  diversified  diet.  Once  let  the 
traditional  sole  diet  of  the  barbarian,  be  it  fish,  or  flesh,  or 
grain,  be  crossed  with  some  other  species  of  food,  exciting 
thus  the  pleasure  which  resides  in  variety,  and  an  economic 
force  has  been  introduced  into  the  life  of  the  community  which 
is  capable  of  producing  mighty  results. 

Without  claiming  to  speak  with  authority  as  a  student  of 
sociology,  I  should  say  that  this  has  been  the  lever  by  which 
more  tribes  and  races  of  men  have  been  raised  and  kept,  one 
degree,  at  least,  above  the  condition  of  a  population  pressing- 
all  the  time,  at  all  points,  upon  the  limits  of  subsistence,  than 
by  any  other. 

A  diversified  diet,  although  doubtless  it  contributes,  in  a 
degree,  to  health  and  vigor,  is  yet  a  pure  luxury  in  the  sense 
that  it  is  never  sought  on  the  former  account,  but  wholly 
because  of  the  gratification  of  appetite  thereby  secured.  It 
will  seem  strange  to  those  who  have  not  studied  the  question 
of  population,  that  an  appetite  for  objects  of  luxury  should 
be  spoken  of  as  having  greater  power  to  overcome  the  dispo- 
sition to  indolence  and  the  disposition  to  excessive  procre- 
ation, than  the  fear  of  privation  and  actual  misery.  Yet  so  it 
is  ;  and  as  we  go  up  the  scale  of  human  wants  and  desires,  as 
viewed  by  the  moralist,  we  shall  find  that,  in  general,  the 
higher  the  want  or  desire,  ethically  considered,  the  stronger 
it  proves  to  be.  Mere  sentiments,  involving  no  gratification 
to  any  bodily  sense,  impel  men  to  exertions  the  most  painful 
and  protracted,  and  hold  in  check  the  most  masterful  passion 
of  the  human  kind,  that  passion  which  defies  abject  physical 
want  and  laughs  in  the  face  of  famine  and  pestilence. 

399.  Decencies. — Of  narrower  range  in  its  application  to 
tribes  and  races  of  men  than  the  desire  of  a  diversified  diet, 
but  of  greater  intensity  and  persistency  within  that  range,  is 
the  desire  of  what  we  may  call  decencies,  meaning  thereby 
those  things  which  are  prescribed  or  required  by  public  opin- 
ion. It  is  evident  that  the  term  decencies,  in  economics,  must 


DECENCIES  OR  LUXURIES?  309 

have  a  very  various  application  to  different  communities  and 
to  different  classes  within  the  same  community. 

"  The  question  whether  a  given  commodity  is  to  be  con- 
sidered as  a  decency  or  a  luxury,  is  obviously  one  to  which  no 
answer  can  be  given,  unless  the  place,  the  time  and  the  rank 
of  the  individual  using  it  be  specified.  The  dress  which  in 
England  was  only  decent  a  hundred  years  ago,  would  be  almost 
extravagant  now  ;  while  the  house  and  furniture  which  now 
would  afford  merely  decent  accommodations  to  a  gentleman^ 
would  then  have  been  luxurious  for  a  peer. 

"  The  causes  which  entitle  a  commodity  to  be  called  a  neces- 
sary, are  more  permanent  and  more  general.  They  depend 
partly  upon  the  habits  in  which  the  individual  in  question  has 
been  brought  up,  partly  on  the  nature  of  his  occupation,  on 
the  lightness  or  severity  of  the  labors  and  hardships  that  he 
has  to  undergo,  and  partly  on  the  climate  in  which  he  lives. 

"Shoes  are  necessaries  to  all  the  inhabitants  of  England. 
Our  habits  are  such  that  there  is  not  an  individual  whose 
health  would  not  suffer  from  the  want  of  them.  To  the  lowest 
class  of  the  inhabitants  of  Scotland  they  are  luxuries.  Custom 
enables  them  to  go  barefoot  without  inconvenience  and  with- 
out degradation.  When  a  Scotchman  rises  from  the  lowest  to 
the  middling  classes  of  society,  they  become  to  him  decencies. 
He  wears  them  to  preserve,  not  his  feet,  but  his  station  in  life. 
To  the  highest  class,  Avho  have  been  accustomed  to  them  from 
infancy,  they  are  as  much  necessaries  as  they  are  to  all  classes 
in  England. 

"  To  the  highest  classes  in  Turkey,  wine  is  a  luxury,  and 
tobacco  a  decency.  In  Europe,  it  is  the  reverse.  The  Turk 
drinks  and  the  European  smokes,  not  in  obedience  but  in 
opposition  both  to  the  rules  of  health  and  to  the  forms  of 
society.  But  wine  in  Europe  and  the  pipe  in  Turkey  are 
among  the  refreshments  to  which  a  guest  is  entitled,  and 
which  it  would  be  as  indecent  to  refuse  in  the  one  country  as 
to  offer  in  the  other. 

"  A  carriage  is  a  decency  to  a  woman  of  fashion,  a  necessary 
to  a  physician,  and  a  luxury  to  a  tradesman." ' 

*  N.  W.  Senior. 


POLITICAL  ECONOMY. 

400.  The  Desire  of  Decencies  the  Great  Preventive  Check 
to  Population. — Whatever  dignity  the  moralist  may  assign 
to  the  disposition  to  conform  to  the  prevailing  sentiments  of 
the  community,  the  economist  must  recognize  this  as  the  most 
effective  motive  which  operates  either  to  urge  men  to  labor 
for  the  production  of  wealth,  or  to  check  the  increase  of  pop- 
ulation after  the  condition  of  "  diminishing  returns  "  has  been 
reached.  It  is  in  the  latter  respect  that  we  have  here  espe- 
cially to  do  with  it.  "The  great  preventive  check,"  says  the 
wise  economist  so  oft  quoted  in  this  chapter,  "  is  the  fear  of 
losing  decencies."  If  by  this  is  to  be  understood  the  check 
which  is  of  greatest  potency  where  it  operates  at  all,  the 
remark  is  perfectly  just.  But,  in  fact,  it  is  only  in  few  com- 
munities that  this  cause  operates  with  sufficient  force  to 
restrict  population  within  the  limits  of  the  highest  per  capita 
production.  In  England,  among  the  working  classes  repro- 
duction has  gone  on  with  the  least  possible  regard  to  its  effect 
upon  the  standard  of  living.  In  France,  on  the  other  hand, 
even  the  peasantry  are  so  fully  alive  to  the  inexpediency  of 
a  rapid  multiplication,  and  are  so  temperate  and  prudent,  that 
the  excess  of  births  over  deaths  has  been  reduced  to  a  mini- 
mum. In  the  States  of  the  American  Union,  the  increase  of 
population  was,  until  recently,  everywhere  encouraged  by  the 
fact  that  the  country  had  not  reached  the  condition  of  dimin- 
ishing returns,  but,  on  the  contrary,  as  is  always  the  case 
before  that  condition  is  reached,  foreign  immigration  and 
native  growth  in  numbers  alike  added  to  the  power  and  wealth 
of  the  several  communities.  Within  the  past  twenty-five 
years,  the  rate  of  natural  increase  in  the  Northeastern  States 
has  encountered  a  decided  check,  due  to  the  rising  standard 
of  living  in  communities  whose  productive  capabilities  are 
already  fully  developed. 

401.  Influence  of  a  Popular  Tenure  of  the  Soil  Upon 
Population. — There  can  be  no  question  that  the  influence 
exerted  upon  population  by  a  popular  tenure  of  the  soil  is 
very  conservative.  The  reasons  therefor  are  thus  stated 
by  M.  Sismondi : 

"In  the  countries  in  which  cultivation  by  small  proprietors 


SMALL  FARMS  VS.    POPULATION.  31  r 

Btill  continues,  population  increases  regularly  and  rapidly 
until  it  has  attained  its  natural  limits  :  that  is  to  say,  inherit- 
ances continue  to  be  divided  and  subdivided  among  several 
sons  as  long  as,  by  an  increase  of  labor,  each  family  can 
extract  an  equal  income  from  a-  smaller  portion  of  land.  A 
father  who  possessed  a  vast  extent  of  natural  pasture,  divides 
it  among  his  sons,  and  they  turn  it  into  fields  and  meadows  ;. 
his  sons  divide  it  among  their  sons,  who  abolish  fallows  ;  each 
improvement  in  agricultural  knowledge  admits  of  another 
step  in  the  subdivision  of  property. 

"  But  there  is  no  danger  that  the  proprietor  will  bring  up 
children  to  make  beggars  of  them. 

"  He  knows  exactly  what  inheritance  he  has  to  leave  them  ; 
he  knows  that  the  law*  will  divide  it  equally  among  them  ; 
he  sees  the  limits  beyond  which  partition  would  make  them 
descend  from  the  rank  which  he  himself  has  filled  ;  and  a  just 
family  pride,  common  to  the  peasant  and  the  prince,  makes 
him  abstain  from  summoning  into  life  children  for  Avhom  he 
can  not  properly  provide.  If  more  are  born,  at  least  they  do 
not  marry,  or  they  agree  among  themselves  which  of  the  sev- 
eral brothers  shall  perpetuate  the  family." 

The  power  of  population  strictly  to  limit  itself,  under  the 
impulse  to  preserve  family  estates  from  undue  subdivision,  by 
the  means  adverted  to  in  the  closing  sentence  of  the  paragraph 
quoted,  is  strikingly  illustrated  by  Prof.  Cliffe  Leslie  in  the 
facts  which  he  adduces  regarding  the  population  of  Auvergne, 
in  France.  In  the  mountains,  it  appears,  the  people  cling 
with  remarkable  tenacity  to  the  conservation  of  the  inherit- 
ance unbroken.  The  daughters  willingly  consent  to  take 
vows  and  renounce  all  part  in  the  common  estate  ;  or,  if  they 
contract  marriage,  agree  to  leave  to  the  head  of  the  family 
their  individual  shares  of  the  inheritance.  It  is  the  same  with 
the  sons,  of  whom  some  become  priests  ;  others  emigrate, 
consenting  never  to  claim  any  part  of  the  property.  One  of 
the  sons  remains  at  home,  working  with  the  father  and 

*  The  law  of  so-called  partible  succession,  prevailing  widely  over  the- 
western  part  of  Continental  Europe. 


312  POLITICAL  ECONOMY. 

mother,  and  becomes  in  time  the  proprietor  of  the  ancestral 
estate.  Thus  the  principle  of  equal  partition,  established  by 
law,  is  eluded  by  the  connivance  of  the  family,  it  seldom 
occurring  that  the  other  children  assert  their  claims,  so  fully 
accepted  is  this  usage  in  the  manners  of  the  mountains. 

Prof.  Leslie,  after  giving  the  foregoing  as  the  substance  of 
an  official  report,  adds  :  "  The  renunciation  by  the  emigrants 
of  their  share  in  the  family  property  certainly  shows,  if  not  an 
extraordinary  imperviousness  to  new  ideas,  an  extraordinary 
tenacity  of  old  ones  ;  and,  in  particular,  of  two  ideas  which 
ure  among  the  oldest  in  human  society — subordination  to  the 
male  head  of  the  family,  and  conservation  of  the  family  prop- 
erty unbroken." 

From  the  London  Times,*  I  take  the  following  testimony 
to  the  influence  of  an  extensive  ownership  of  land  in  antagon- 
izing the  procreative  force,  and  in  winning  for  improved 
living,  comfort,  luxury,  and  security  of  condition,  what  would 
otherwise  be  usurped  and  wasted  upon  increase  of  population, 
with  resulting  squalor  and  poverty  : 

"  Over  the  greater  part  of  France  the  standard  of  comfort 
and  well-being  has  been  increasing  ever  since  the  termination 
of  the  great  war,  in  1815.  The  country  had  been  so  drained 
and  impoverished  by  the  wars  of  Napoleon  and  by  a  century 
and  a  half  of  bad  government,  that  the  general  misery  of  the 
population  was  indescribable,  and  the  poverty  even  of  the 

landed  proprietors  and  middle  classes  was  very  great 

For  many  years  comfort  and  well-being,  and  even  luxury, 
have  made  their  way  into  the  households  of  all  classes  in 
France.  The  standard  of  living  has  risen  enormously.  The 
habits  of  saving  and  thrift  have  not  been  neglected.  In  the 
art  of  managing  and  regularizing  their  lives,  the  French  peo- 
ple are  unrivaled  and  the  object  of  every  family  is  to  live  well 
and  to  save,  at  the  same  time,  so  as  to  be  able  to  leave  their 
sons  and  daughters  in  as  good  a  position  as  themselves,  at  all 

events,  and  in  a  bettei1,  if  possible Among  people  with 

such  habits  and  such  views  of  life,  the  risk  and  expenditure 

*January  35,  1883. 


ATTA  CKS    UPON  MA L  THUSIA ^TISM.  3 1 3 

attendant  upon  a  large  family  are  naturally  regarded  with 
horror.  '  Since  two  or  three  children  give  us  sufficient  enjoy- 
ment of  the  pleasures  of  paternity,  why,'  the  greater  number 
of  Frenchmen  argue,  '  should  we  have  more  ?  With  two  or 
three  children  we  can  live  comfortably,  and  save  sufficient  to 
leave  ouiv  children  as  well  off  as  ourselves  ;  a  greater  number 
would  involve  curtailment  of  enjoyments  both  for  ourselves 
and  our  children.' " 

402.  Attacks  Upon  the  Doctrine  of  Malthus.— The  views 
respecting  the  relations  of  population  and  subsistence  con- 
tained in  the  foregoing  paragraphs  are  essentially  those  which 
are  known  as  Malthusian.  Mr.  Malthus  unquestionably  com- 
mitted some  errors  of  statement  and  faults  of  reasoning  in 
his  original  enunciation  of  the  principles  of  population,  as  is 
likely  to  be  the  case  on  the  first  promulgation _of  great  econ- 
omic or  social  laws  ;  and  during  his  whole  life  he  was  closely 
followed  by  criticism  and  abuse.  Since  Mr.  Malthus'  death 
has  taken  all  personal  interest  out  of  the  controversy  over 
the  principles  of  population,  and  Malthusianism  has  come  to  be 
merely  a  name  for  a  body  of  doctrine,  the  views  here  pre- 
sented have  been  a  butt  for  the  headless  arrows  of  begin- 
ners in  economics  and  of  sundry  sentimental  sociologists. 

Meanwhile  the  doctrine  (l)  that  there  resides  in  nearly  all 
races  and  tribes  of  men  a  strong,  urgent,  persistent  disposition 
to  carry  the  increase  of  population  beyond  the  limits  of  ade- 
quate subsistence  ;  (2)  that  very  few,  even  among  the  noblest 
of  modefn  communities,  have  shown  the  capability  to  check 
reproduction  at  the  line  of  the  highest  per  cafita  production 
of  food,  clothing,  shelter  and  fuel  ;  (3)  that,  if  this  line  be 
once  over-passed,  the  procreative  force  proceeds  thereafter 
with  augmented  force  ;  (4)  that,  if  the  desire  of  luxuries  and 
decencies  does  not  prevail  to  stop  the  increase  of  population, 
the  fear  of  losing  necessaries,  and  even  the  actual  experience 
of  privation  and  suffering  almost  certainly  will  fail  to  do  so  ; 
(5)  that,  through  the  dominion  of  this  imperious  instinct, 
nearly  all  the  communities  of  men  are  under  the  constant  im- 
minence of  being  swept  away  into  misery,  squalor  and  disease, 
this  doctrine  which  we  term  Malthusianism  has  stood  unshat- 


3 1 4  POLITICAL  ECONOMY. 

tered,  impregnable,  amid  all  the  controversy  that  has  raged 
around  it. 

403.  Prof.  Senior's  Statement.— I  can  not  forbear  again  to 
quote  this  eminently  wise  economist,  to  whose  criticisms,  in- 
deed, Mr.  Malthus  owed  the  correction  of  some  of  the  faults 
of  his  original  statement  of  the  principles  of  population.  Prof. 
Senior  says : 

"  Although  we  believe  that,  as  civilization  advances,  the 
pressure  of  population  upon  subsistence  is  a  decreasing  evil, 
we  are  far  from  denying  the  prevalence  of  this  pressure  in  all 
long  settled  countries  :  indeed,  in  all  countries  except  those 
which  are  the  seats  of  colonies  applying  the  knowledge  of  an 
old  country  to  an  unoccupied  territory. 

"  We  believe  that  there  are  few  portions  of  Europe  the 
inhabitants  of  which  would  not  be  richer  if  their  numbers 
were  fewer,  and  would  not  be  richer  hereafter  if  they  were 
now  to  retard  the  rate  at  which  their  population  is  increasing." 


CHAPTER  III. 

CONSUMPTION  :      THE    DYNAMICS    OP   WEALTH. 

404.  The  Potato  Philosophy  of  Wages.— We  have,  thus  far, 
spoken  of  economic  wants,  mainly  in  their  effects  as  retarding 
the  increase  of  numbers.  Until  an  adequate  check,  of  a  suffi- 
ciently persistent  character,  has  been  secured  here,  the  econo- 
mist who  fully  appreciates  the  consequences  of  over-popula- 
tion can  hardly  fail  to  recognize  almost  every  economic  want, 
whatever  its  origin  or  its  object,  and  however  little  either  may 
be  approved  by  the  moralist  or  physiologist,  as  being  better 
than  none. 

It  has  been  from  this  point  of  view,  that  the  English  writ- 
ers have  insisted  so  strongly  that  cheap  food  is  a  thing  to  be 
deprecated. 

Thus  Mr.  J.  R.  McCulloch  says  :— "  When  the  standard  of 
natural  or  necessary  wages  is  high — when  wheat  and  beef,  for 


DEAR  VS.    CHEAP  FOOD.  315 

•xaraple,  form  the  principal  part  of  the  food  of  the  laborer, 
and  porter  and  beer  the  principal  part  of  his  drink,  he  can 
bear  to  retrench  in  a  season  of  scarcity.  Such  a  man  has  room 
to  fall  ;  he  can  resort  to  cheaper  sorts  of  food — to  barley,  oats, 
rice  and  potatoes.  But  he  who  is  habitually  fed  on  the  cheap- 
est food  has  nothing  to  resort  to,  when  deprived  of  it.  Labor- 
ers placed  in  this  situation  are  absolutely  cut  off  from  every 
resource.  You  can  take  from  an  Englishman  ;  but  you  can 
not  take  from  an  Irishman.  The  latter  is  already  so  low,  he 
can  fall  no  lower ;  he  is  placed  on  the  very  verge  of  existence  ; 
his  wages,  being  regulated  by  the  price  of  potatoes,*  will  not 
buy  wheat,  or  barley,  or  oats  ;  and  whenever,  therefore,  the 
supply  of  potatoes  fails,  it  is  next  to  impossible  that  he  should 
escape  falling  a  sacrifice  to  famine." 

And  Prof.  Thorold  Rogers  says  :  "  A  community  which 
subsists  habitually  on  dear  food  is  in  a  position  of  peculiar 
advantage,  when  compared  with  another  which  lives  on  cheap 
food,  one  for  instance,  which  lives  on  wheat,  as  contrasted 
with  another  which  lives  on  rice  or  potatoes  ;  and  this,  quite 
apart  from  the  prudence  or  incautiousness  of  the  people." 

405.  Better  Things  Than  Dear  Food. — Clearly,  the  basis 
of  this  reasoning  is  the  Malthusian  doctrine.  These  econo- 
mists recognize  the  strong  probability,  the  almost  certainty, 
that  a  people  will  carry  their  increase  closely  up  to  the  limits 
of  subsistence  according  to  the  kind  of  food  they  use,  what- 
ever that  may  be.  If  it  be  the  lowest  and  cheapest,  like  rice 
in  India  and  potatoes  in  Ireland,  the  failure  of  the  crop  means 
starvation,  no  adequate  reserve  being  expected  to  be  provided, 
on  a  sufficient  scale,  by  the  population  of  any  country.  If  the 
kind  of  food  be  higher  and  dearer,  the  masses  may,  in  the  event 
of  a  failure  of  the  crop  or  crops  concerned,  fall  back  for  the 
time  upon  the  lower  and  the  cheaper. 


*  Dr.  Travers  Twiss  states  that  it  was  calculated  prior  to  the  famine, 
that  two-thirds  of  the  uopulation  of  Ireland  lived  wholly  on  potatoes. 
Sir  Arch.  Alison  says  :  "  Three  times  the  number  of  persons  can  be  fed 
on  an  acre  of  potatoes  who  can  be  maintained  on  an  acre  of  wheat  in 
ordinary  seasons." 


316  POLITICAL  ECONOMY. 

But  suppose  this  danger  of  an  increase  of  numbers,  fast  fol- 
lowing up  subsistence,  crowding  all  the  time  upon  the  limits 
of  food,  to  be  once  for  all  passed.  Suppose  we  have  a  commu- 
nity which  will  accept  the  opportunity  of  living  upon  cheap 
food  and  apply  the  saving  to  the  permanent  enlargement  of 
their  capital,  or  to  other  forms  of  enjoyment,  to  dress,  to 
better  lodgings,  to  luxuries,  perhaps  to  expenditures  upon 
education  and  culture.  What  harm,  then,  would  Mr.  McCul- 
loch  or  Prof.  Rogers  find  in  cheap  food,  be  it  potatoes,  or 
rice,  or  the  Indian  corn  of  America  ?  Surely  none.  The  more 
is  saved  from  the  cost  of  food,  the  more  can  be  spent  upon 
making  homes  ample  and  comfortable,  healthful  and  decent, 
the  more  can  be  spent  upon  school-houses  and  churches,  upon 
books  and  periodicals,  upon  literature  and  music  and  art.  The 
wife  may  be  let  to  stay  at  home  and  keep  the  house  ;  the 
children  be  given  their  time,  to  acquire  an  education  and  to 
secure  for  themselves  a  thorough  preparation  for  their  work 
in  life. 

Let  me  not  be  understood  as  quarreling  with  this  potato 
philosophy  of  wages  so  far  as  the  assumption  which  underlies 
it,  viz.,  that  population  will  inevitably  keep  close  up  to  the 
limits  of  subsistence  on  the  kind  of  food,  whatever  that  may 
be,  which  forms  the  popular  diet,  is  justified  by  the  facts  of 
society,  as  it  very  widely  is.  I  only  claim  that,  in  any  country 
whose  people  had  shown  the  capability  of  setting  bounds  to 
the  increase  of  population  by  the  exercise  of  their  own  judg- 
ment and  will,  cheap  food  would  become  a  means  of  increas- 
ing the  comforts  and  luxuries  enjoyed  by  that  people  in  other 
directions  of  expenditure,  or  of  enlarging  the  capital  and  im- 
proving the  productive  agencies  at  their  command. 

406.  The  Dynamics  of  Wealth.— As  a  means  of  checking 
the  increase  of  numbers,  which  otherwise  would  surely  carry 
population  to  the  point  of  misery,  famine  and  pestilence, 
the  appearance  of  almost  any  economic  want  must  be  greeted 
as  a  good,  without  much  respect  to  the  origin  or  object  of  that 
want.  But  the  moment  the  capability  of  the  self -limitation 
of  population  is  assured,  the  economist  discovers  wide  differ- 
ences between  the  various  demands  for  the  consumption  of 


THE  DYNAMICS  OF    WEALTH.  317 

the  existing  body  of  wealth,  made  by  the  differing  appetites 
and  desires  of  different  communities,  or  of  different  classes  in 
the  same  community,  as  regards  the  influence  of  those  various 
forms  of  consuming  wealth  upon  the  power  and  the  disposition 
to  create  values  in  the  future.* 

It  is  here  we  find  the  body  of  economic  literature  most 
deficient.  We  need  a  new  Adam  Smith,  or  another  Hume,  to 
write  the  economics  of  consumption  in  which  would  be  found 
the  real  Dynamics  of  Wealth  ;  to  trace  to  their  effects  upon 
production  the  forces  which  are  set  in  motion  by  the  uses  made 
of  wealth  ;  to  show  how  certain  forms  of  consumption  clear 
the  mind,  strengthen  the  hand  and  elevate  the  aims  of  the 
individual  economic  agent,  while  promoting  that  social  order 
and  mutual  confidence  which  are  favorable  conditions  for  the 
complete  development  and  harmonious  action  of  the  industrial 
system  ;  how  other  forms  of  consumption  debase  and  debauch 
man  as  an  economic  agent,  and  introduce  disorder  and  waste 
into  the  complicated  mechanism  of  the  productive  agencies. 
Here  is  the  opportunity  for  some  great  moral  philosopher, 
strictly  confining  himself  to  the  study  of  the  economic  effects 
of  these  causes,  denying  himself  all  regard  to  purely  ethical, 
political  or  theological  considerations,  to  write  what  shall  be  the 
most  important  chapter  of  political  economy,  now,  alas, 
almost  a  blank. 

407.  Two  Popular  Fallacies  Concerning  Consumption. — 
In  a  preceding  chapter,  we  discussed  the  question,  how  it  is 
that  there  can  be,  at  any  time,  with  abounding  natural  resources, 
unemployed  labor  power,  unemployed  capital  power,  no  lack  of 
disposition  on  the  part  of  the  owners  of  capital  to  secure  a 
return  from  the  productive  use  of  their  property,  no  lack  of  dis- 

*  When  we  remember  that  the  expenditure  of  the  people  of  Great 
Britain,  annually,  for  alcoholic  beverages,  reaches  the  enormous  sum  of 
£180,000,000,  or  $900,000,000,  four-fifths,  at  least,  of  which  is  spent  in 
a  way  that  is  not  only  without  any  beneficial  effect,  but  is  positively 
injurious,  a  large  part  of  it  going  to  the  destruction  of  moral,  intellectual 
and  physical  power,  we  get  a  rude  measure  of  the  force  which  a  wiser 
consumption  of  wealth  might  introduce  into  the  economic  life  of  that 
country. 


3l8  POLITICAL  ECONOMY. 

position  on  the  part  of  laborers  to  earn  wages  by  work,  and 
yet  an  enforced  idleness,  with  resulting  poverty  and  squalor. 
Two  popular  explanations  of  this  condition  of  things  are  always 
sure  to  be  offered  during  the  continuance  of  "  hard  times,"  one 
of  which  finds  its  expression  in  the  sounding  phrase,  "  over- 
production," while  the  other  emphasizes  its  supposed  antag- 
onism to  the  theory  of  the  over-productionists,  by  the  use  of 
the  term  "  under-consumption." 

A  brief  reference  to  the  conditions  under  which  wealth  is 
produced,  will  suffice  to  show  that,  like  all  condensed  phrases, 
each  of  these  large  words  signifies  more  than  one  thing  ;  that, 
in  certain  senses,  each  phrase  embodies  a  great  deal  of  arrant 
nonsense  ;  that,  taken  otherwise,  each  embodies  a  vital  truth  ; 
and,  finally,  that,  so  far  as  either  means  any  thing  at  all,  that 
meaning  is  exactly  identical  with  what  is  expressed  by  the 
other. 

408.  Over-production. — All  producers  are  also  consumers. 
Men  produce  only  because  they  desire  to  consume.  They  pro- 
duce only  so  much  as  they  desire  to  consume.  Any  given 
producer  may,  however,  desire  to  realize  his  enjoyment  either 
now,  or  at  a  future  time  ;  either  in  satisfying  his  own  personal 
wants  and  appetites,  or  in  satisfying  those  of  friends,  children 
or  beneficiaries. 

The  idea  of  over-production,  therefore,  involves  the  absurd- 
ity of  supposing  that  men  will  labor  to  produce  that  which 
they  have  not  the  desire  to  consume. 

But  passing  over  this  initial  absurdity,  we  observe  in  the 
use  of  this  phrase,  a  vague  notion  that  the  amount  of  necessaries, 
comforts,  and  luxuries,  which  a  community,  at  any  given 
stage  of  its  progress,  is  prepared  to  consume  is  a  definite 
amount  ;  and  that,  if  the  amount  produced  is  somewhat  rapidly 
increased,  the  capacity  for  consumption  will  be  outrun,  and  men 
will  stand,  without  appetite,  before  a  mass  of  good  things,  for 
which  they  know  no  uses  and  with  which  they  are,  for  the  time, 
utterly  at  a  loss  to  deal. 

The  fallacy  of  this  will  sufficiently  appear  if  we  ask,  not 
who  are  the  men  able  and  willing  to  make  away  with  a  vastly 
greater  body  of  wealth  than  they  find  themselves  in  possession 


O  VER-PROD  UC  TION.  3 1 9 

of,  but  who  are  the  men  who  would  not  he  found  willing  and 
able  to  do  this  ?  Is  there  any  mechanic  or  laborer,  receiving 
wages  to  the  amount  of  $300  or  $500  a  year,  who  could  not, 
and  would  not  gladly,  spend  $000  or  $1,000?  Is  there  any  mer- 
chant or  professional  man  or  man  of  leisure,  with  an  income 
of  $3,000  or  $5,000,  or  $10,000,  M-ho  could  not  easily  give 
account  of  an  income  of  $6,000,  or  $10,000,  or  $20,000  ?  It  is 
absurd  to  suppose  that  the  limit  of  consumption  can  be  reached. 
What  with  houses  and  horses,  clothes,  equipage,  and  travel, 
costly  viands  and  drinks,  any  civilized  community  could 
instantly  double,  quadruple,  or  decuple  its  consumption  of 
wealth  were  the  wealth  provided. 

409.  Under-consumption — In    like    manner,  the    phrase, 
under-consumption,  involves  an  initial  absurdity,  when  applied 
in  explanation  of  so-called  "  hard  times."     Thus,  during  the 
period  of  1876-9,  it  was  said  that  the  people  of  the  United 
States  were  suffering  from  under-consumption  ;  yet,  not  for 
a  long  period,  if  ever,  had  consumption  followed  so  quickly 
upon  production  ;  had  the  food  earned  been  so  quickly  eaten  ; 
had  the  margin  of  saving  been  so  small,  as  during  the  years 
referred  to.     A  strange  term,  truly,  to  apply  to  such  a  condi- 
tion :    this  under-consumption  ! 

But  passing  by  this  initial  absurdity,  we  find  that  beneath 
the  phrase,  under-consumption,  lurks  the  notion  that,  some- 
how or  other,  wealth  when  once  produced  is  in  danger  of  get- 
ting in  the  way,  so  that  other  wealth  can  not  be  produced 
until  this  be  first  eaten  or  drunk  or  burned  up,  or  by  some 
means  gotten  rid  of.  As  a  matter  of  fact,  there  has  never 
been  any  accumulation  of  wealth  on  the  earth's  surface  so  great 
as  to  impede  the  further  production  of  wealth,  and  there  is  not 
likely  to  be.  Were  men  willing  to  produce  wealth  without 
consuming  it,  they  could  go  on  forever.  Of  course,  men  will 
not,  in  general,  produce  more  than  they  desire,  sooner  or  later, 
to  consume. 

410.  Over-production  and  under-consumption  mean  the  same 
thing,  and  that  is  under-production.     This  is,  of  course,  a  mere 
jangle  of  words,  until  the  phrases  are  qualified,  as  they  should 
be.     Over-production,  as  alleged  by  those  who  would  explain 


320  POLITICAL  ECONOMY. 

hard  times,  is  partial  over-production,  production,  that  is, 
which  has  gone  on  in  certain  lines,  generally  under  speculative 
impulses,  until  it  has  exceeded  the  normal,  or  even,  possibly,  a 
highly  stimulated  demand.  This  excess  of  supply  in  certain 
lines  leads  to  the  accumulation  of  vast  stocks  of  unsalable 
goods,*  which  involves  partial  under-consumption,  these  stocks 
melting  slowly  away  through  a  period  extending  over  months, 
it  may  be,  years.  Meanwhile,  general  under-production  is  the 
result.  The  bodies  of  labor  and  capital  which  have  been  called 
into  the  over-done  branches  of  industry,  can  not  readily,  if  at 
all,  be  transferred  to  other  branches  ;  they  remain  where  they 
are,  half  employed,  waiting  for  the  renewal  of  demand.  In  the 
dreary  interval,  producing  little,  they  have  little  with  which  to 
purchase  the  products  of  others,  who  are  consequently  com- 
pelled to  restrict  their  production  proportionally,  as  was  shown 
in  pars.  237-40. 

In  this  way  it  is  we  vindicate  our  paradox  that  over-produc- 
tion means  nothing  more  or  less  than  under-production,  or,, 
for  that  matter,  than  under-consumption.  There  is  no  over- 
production possible,  except  a  partial  over-production,  an  over- 
production in  certain  lines,  which  inevitably  involves  a  low- 
ering of  the  scale  of  production  as  a  whole  :  that  is,  partial 
over-production  involves  general  under-production. 

It  is  under-production  which  makes  hard  times.  Over-pro- 
duction, general  over-production,  is  impossible,  and,  were  it 
to  occur,  were  the  creation  of  wealth  to  outrun  men's  capacity 
to  consume,  no  one  would  be  injured  thereby.  But  under-pro- 
duction is  an  unmistakable  evil.  It  means  less  wealth  pro- 
duced, and  consequently  fewer  of  the  comforts  and  necessaries- 
of  life,  on  the  average,  to  each  member  of  the  community. 
To  large  classes  it  means  hunger,  cold  and  squalor  ;  debility, 
sickness  and  premature  death. 

411.  The  Destruction  of  Wealth — We  have  already 
adverted  to  the  fact  of  the  extensive  destruction  of  wealth,  by 

*The  result  is  the  same  if  the  distorted  production  of  the  past  has 
taken  the  form  of  an  excess  of  machinery  and  plant  in  some  lines  or 
in  many  lines  of  manufacture,  or  an  excess  of  the  means  of  transporta- 
tion. 


MAKING    TRADE   GOOD.  321 

accident  or  by  natural  causes,  as  affording  an  explanation,  in 
part,  of  the  comparatively  slow  progress  of  accumulation,  even 
in  the  states  whose  land  power,  labor  power  and  capital  power 
are  greatest.  We  have  now  to  deal  with  the  same  fact,  in  our 
theory  of  consumption. 

A  most  stubborn  belief  appears  among  the  non-agricultural 
masses  of  every  community  where  wages  or  labor  or  wealth  is 
a  topic  of  familiar  discussion,  to  the  effect  that  the  destruction 
of  wealth  in  some  way  increases  production.  Laboring  people 
generally  hold  to  this  ;  our  servants  believe  it  religiously,  and 
justify  themselves,  secretly  or  openly,  for  all  their  breakage  and 
wastage  by  the  plea  that  it  "  makes  trade  good."  Even  culti- 
vated persons  are  not  free  from  an  instinctive  feeling  that  the 
abrupt  removal  of  the  existing  body  of  wealth  quickens  indus- 
trial activity  and  promotes  the  general  welfare,  though  it  may 
be  at  the  cost,  for  the  time,  of  individuals. 

Frederic  Bastiat,  in  one  of  his  capital  little  essays,  has  dealt 
with  this  notion  so  cleverly  that  there  can  be  no  excuse  for 
any  writer  using  his  own  phrases  on  this  theme. 

412.  The  Broken  Pane.— "Have  you  ever  had  occasion  to 
witness  the  fury  of  the  honest  burgess,  Jacques  Bonhomme, 
when  his  scapegrace  son  has  broken  a  pane  of  glass  ?  If  you 
have,  you  can  not  fail  to  have  observed  that  all  the  bystanders, 
were  there  thirty  of  them,  lay  their  heads  together  to  offer 
the  unfortunate  proprietor  this  never-failing  consolation,  that 
there  is  good  in  every  misfortune,  and  that  such  accidents 
give  a  fillip  to  trade.  Every  body  must  live.  If  no  windows 
were  broken,  what  would  become  of  the  glaziers  ?  Now,  this 
formula  of  condolence  contains  a  theory  which  it  is  proper  to 
lay  hold  of  in  this  very  simple  case,  because  it  is  exactly  the 
same  theory  which  unfortunately  governs  the  greater  part  of 
our  economic  institutions. 

"  Assuming  that  it  becomes  necessary  to  expend  six  francs 
in  repairing  the  damage,  if  you  mean  to  say  that  the  accident 
brings  in  six  francs  to  the  glazier,  and  to  that  extent  encourages 
his  trade,  I  grant  it  fairly  and  frankly,  and  admit  that  you 
reason  justly. 

"  The  glazier  arrives,  does  his  work,  pockets  his  money,  rubs 


322  POLITICAL   ECONOMY. 

his  hands,  and  blesses  the  scapegrace  son.  That  is  what  we 
see. 

"  But  if,  by  way  of  deduction,  you  come  to  conclude,  as  is 
too  often  done,  that  it  is  a  good  thing  to  break  windows — that 
it  makes  money  circulate — and  that  encouragement  to  trade 
in  general  is  the  result,  I  am  obliged  to  cry,  halt !  Your 
theory  stops  at  what  we  see,  and  takes  no  account  of  what  we 
don't  see. 

"  We  don't  see  that  since  our  burgess  has  been  obliged  to 
spend  his  six  francs  on  one  thing,  he  can  no  longer  spend 
them  on  another. 

"  We  don't  see  that  if  he  had  not  this  pane  to  replace,  he 
would  have  replaced,  for  example,  his  shoes,  which  are  down 
at  the  heels  ;  or  have  placed  a  new  book  on  his  shelf.  In 
short,  he  would  have  employed  his  six  francs  in  a  way  in 
which  he  can  not  now  employ  them.  Let  us  see,  then,  how  the 
account  stands  with  trade  in  general.  The  pane  being  broken, 
the  glazier's  trade  is  benefited  to  the  extent  of  six  francs. 
That  is  what  we  see. 

"  If  the  pane  had  not  been  broken,  the  shoemaker's  or  some 
other  trade  would  have  been  encouraged  to  the  extent  of  six 
francs.  That  is  what  we  don't  see.  And  if  we  take  into 
account  what  we  don't  see,  which  is  a  negative  fact,  as  well 
as  what  we  do  see,  which  is  a  positive  fact,  we  shall  discover 
that  trade  in  general,  or  the  aggregate  of  national  industry, 
has  no  interest,  one  way  or  other,  whether  windows  are  broken 
or  not. 

"  Let  us  see,  again,  how  the  account  stands  with  Jacques 
Bonhomme.  On  the  last  hypothesis,  that  of  the  pane  being 
broken,  he  spends  six  francs,  and  gets  neither  more  nor  less 
than  he  had  before,  namely,  the  use  and  enjoyment  of  a  pane 
of  glass.  On  the  other  hypothesis,  namely,  that  the  accident 
had  not  happened,  he  would  have  expended  six  francs  on 
shoes,  and  would  have  had  the  enjoyment  botfi  of  the  shoes 
and  of  the  pane  of  glass. 

"  Now  as  the  good  burgess,  Jacques  Bonhomme,  constitutes 
a  fraction  of  society  at  large,  we  ai'e  forced  to  conclude  that 
society,  taken  in  the  aggregate,  and  after  all  accounts  of  labor 


DESTRUCTION  OF    WEALTH.  323 

and  enjoyment  have  been  squared,  has  lost  the  value  of  the 
pane  which  has  been  broken." 

413.  Destruction  sometimes  the  Removal  of  Obstruction. 
—It  is,  of  course,  possible  to  conceive  a  situation  where  the 
destruction  of  wealth  may  have  the  direct  effect  to  secure  a 
larger  production  of  wealth.  Thus,  a  man  may  occupy  a  cer- 
tain water  privilege  with  an  antiquated  mill,  which  he  can 
not  make  up  his  mind  to  tear  down.  To  destroy  the  mill 
seems  to  him  like  waste,  or,  even  if  he  appreciates  the  fact 
that  the  erection  of  a  new  and  more  commodious  structure, 
with  modern  appliances,  would  be  true  economy,  he  can  not 
bring  himself  to  incur  the  initial  expense  just  at  this  time  ;  he 
procrastinates  in  the  matter,  and  so  perhaps  goes  on,  year  after 
year,  cramped  in  his  operations,  perhaps  unable  even  to  under- 
take production  in  certain  lines,  for  which  there  is  an  advan- 
tageous opening.  Now,  in  such  a  case,  it  might  happen  that  the 
burning  down  of  the  old  mill  would  lead  to  the  immediate 
erection  of  a  new  one  which  would  pay  for  itself  in  a  short 
time,  and  the  net  result,  thereafter,  be  the  substitution  of  a 
powerful  and  efficient  agent  of  production  for  one  that  was 
inadequate  and  outworn. 

Undoubtedly,  too,  the  destruction  by  fire  of  the  old  and 
crooked  parts  of  certain  cities,  filled  with  rookeries  and  tumble- 
down houses,  almost  impassable  to  traffic  and  repulsive  of  aspect, 
has  led  to  an  actual  increase  of  wealth  within  a  short  time 
thereafter.  The  quarter  destroyed  may  have  been  long  a 
nuisance  and  an  obstruction  to  the  growth  of  the  city  and  the 
development  of  its  trade  ;  but  the  inertia  of  property  owners, 
their  blindness  to  their  large,  their  permanent  interests,  their 
reluctance  to  make  great  capital  expenditures,  and  especially 
the  fact  that  it  was  of  no  use  for  a  single  property  owner  to 
try  to  improve  the  quarter  by  tearing  down  his  rookeries,  so 
long  as  the  general  character  of  the  neighborhood  remained 
what  it  had  been,  these  causes  might  have  long  withstood  the 
needed  improvements.  The  fire  comes,  resolves  all  doubts, 
burns  up  the  accumulated  foulness  of  generations,  leaves  the 
ground  open  to  building,  and,  six  months  or  a  year  thereafter, 
a  new  and  elegant  quarter  has  arisen  from  the  ashes.  Not  all, 


324  POLITICAL  ECONOMY. 

not  by  any  means  the  larger  part,  of  this  represents  the  pro- 
duction of  wealth  in  the  interval.  The  greater  share  repre- 
sents the  transplanting  of  wealth  previously  existing.  Yet,  in 
addition,  there  may,  as  we  said,  conceivably  have  been  a  large 
creation  of  values  due  to  the  improvement  of  commercial  sites 
and  commercial  avenues  heretofore  neglected. 

Such  instances  of  the  destruction  of  wealth  leading  to  a 
larger  production  are  comparatively  rare.  In  the  vast  major- 
ity of  cases,  that  destruction,  however  rejoiced  over  by  shallow 
persons  who  are  influenced  only  by  "  what  they  see,"  or  by 
selfish  persons  who  secure  an  immediate  individual  advantage 
from  the  loss  of  others,  is  a  public  misfortune. 

414.  Government  Expenditure — On  the  part  of  many, 
perhaps  most,  persons  who  favor  large  government  expendi- 
tures, the  actuating  motive  is  found  in  the  opinion  we  have 
already  dealt  with,  that  wasteful  and  even  destructive  consump- 
tion "  makes  trade  good,"  "  encourages  industry,"  "  raises 
wages,"  etc.  To  this  shallow  notion  we  need  pay  no  further 
attention.  Something  which  is  at  least  less  obviously  false  is 
intended  in  the  proposition  laid  down  by  more  than  one  econo- 
mist of  reputation,  that  government  expenditures,  within  mod- 
erate limits,  are  industrially  beneficial. 

This  view  may  be  stated  in  the  language  of  Mr.  McCulloch, 
one  of  the  most  careful  of  the  English  economists  of  the  last 
generation  : — 

"  A  moderate  increase  of  taxation  has  the  same  effect  on  the 
habits  and  industry  of  a  nation  that  an  increase  of  his  family 
or  of  his  necessary  and  unavoidable  expenses  has  upon  a 
private  individual 

"  But  we  must  be  on  our  guard  against  an  abuse  of  this  doc- 
trine. To  render  an  increase  of  taxation  productive  of  greater 
exertions,  economy  and  invention,  it  should  be  slowly  and 
gradually  brought  about,  and  it  should  never  be  carried  to  such 
a  height  as  to  incapacitate  individuals  from  making  the  sacrifices 
it  imposes  by  such  an  increase  of  industry  and  economy  as  it 
may  be  in  their  power  to  make,  without  requiring  any  very 
violent  change  in  their  habits.  The  increase  of  taxation  must 
not  be  such  as  to  make  it  impracticable  to  overcome  its  influ- 


GOVERNMENT  EXPENDITURES.  325 

ence,  or  to  induce  the  belief  that  it  is  impracticable.  Difficulties 
that  are  seen  to  be  surmountable  sharpen  the  inventive  power 
and  are  readily  grappled  with  ;  but  an  apparently  insurmount- 
able difficulty,  or  such  an  excessive  weight  of  taxation  as  it 
was  deemed  impossible  to  meet,  would  not  stimulate,  but  des- 
troy exertion.  Instead  of  producing  new  efforts  of  ingenuity 
and  economy,  it  would  produce  only  despair.  Whenever  taxa- 
tion becomes  so  heavy*  that  the  produce  it  takes  from  individuals 
can  no  longer  be  replaced  by  fresh  efforts,  they  uniformly  cease 
to  be  made  ;  the  population  becomes  dispirited,  industry  is 
paralyzed  and  the  country  rapidly  declines." 

And  to  the  same  effect  Jeremy  Bentham  writes  :  "  By  rais- 
ing money  as  other  money  is  raised,  by  taxes  (the  amount  of 
which  is  taken  by  individuals  out  of  their  expenditure  on  the 
score  of  maintenance),  government  has  it  in  its. power  to  accel- 
erate to  an  unexampled  degree  the  augmentation  of  the  mass 
of  real  wealth." 

415.  Such  is  the  claim  in  behalf  of  government  expendi- 
ture. What  is  to  be  said  of  it  ?  Let  us  proceed  by  way  of 
an  example.  Let  us  take  a  large  population  spread  over  a  vast 
extent  of  country,  like  India,  which  possesses  almost  illimita- 
ble facilities  for  the  improvement  of  the  soil  through  irriga- 
tion, and  whose  broad  spaces  demand  numerous  and  extensive 
lines  of  artificial  communication,  by  canal  or  railway.  Let  it 
be  supposed  that  the  people  occupying  this  country  are  what  the 
people  of  India  now  are,  in  numbers,  in  character,  in  habits  of 
living  and  of  working.  Alike  under  the  influence  of  sexual 
passion  and  of  religious  superstition,!  they  continually  tend  to 
increase  up  to  the  limits  of  subsistence,  even  to  the  verge  of 

*  I  cannot  forbear  to  quote  the  words  of  Bacon  :    "  The  blessing  of 
Judah  and  Issachar  will  never  meet  :  that  the  same  people  should  be 
both  the  lion's  whelp  and  the  ass  between  burdens  ;  neither  will  it  be 
that  a  people  overlaid  with  taxes  should  ever  become  valiant  and  mar- 
tial." 

f  The  early  marriages  of  India  are  attributed  to  the  religious  beliefs  of 
the  people,  as  they  hold  that  the  welfare  of  the  soul  after  death  depends 
greatly  on  the  performance  of  the  burial  rites  by  male  offspring  of  the' 
deceased. 


326  POLITICAL  ECONOMY. 

famine  ;  not  only  accumulating  no  capital,  but  laying  by  no 
store  for  future  wants  ;  having  neither  the  genius  for  organi- 
zation nor  the  capacity  of  self-denial  which  would  be  required 
to  initiate  the  simplest  local  improvements. 

Now,  we  may  imagine  such"  a  population  ruled  by  a  benevo- 
lent, disinterested  despot  of  the  highest  order  of  intelligence, 
a  Napoleon  devoted  to  the  arts  of  peace.  We  may  imagine 
this  ruler,  by  a  system  of  taxation  that  shall  be  as  just 
between  individuals  and  as  judicious  in  its  seasons  and 
methods  as  human  wisdom  can  make  it,  first,  drawing  from 
the  crops  of  good  years  a  store  against  the  occurrence  of  bad 
harvests  ;  then,  by  a  gradually  increasing  stringency  of 
exaction,  adding  to  the  cost  of  living  in  such  a  way  as  to  dis- 
courage the  growth  of  population,  while  applying  the  proceeds 
to  great  public  improvements  which  enable  the  food  supply 
of  the  empire  to  be  readily  equalized  in  the  event  of  local 
scarcity;  which  guard  the  crops  against  the  effects  of  periodi- 
cal drought  ;  which  afford  rapid  and  cheap  passage  to  the 
products  of  inland  districts. 

And  as  the  productive  power  of  the  country  increased  under 
such  an  administration,  we  can  imagine  the  high-minded  ruler, 
intent  on  his  benevolent  purpose,  still  drawing  away  from  the 
people,  by  taxation,  all  the  surplus  above  the  necessary  cost  of 
subsistence  for  the  present  population,  which  might  otherwise 
be  applied  to  the  increase  of  population,  and,  with  the  means 
thus  acquired,  providing  capital  in  its  various  forms  for  the 
use  of  the  frugal  and  the  temperate,  perfecting  communica- 
tions, protecting  the  health  and  lives  of  his  subjects  by  sani- 
tary arrangements,  and,  at  last,  undertaking  the  elementary 
education  of  the  whole  body  of  the  people. 

All  this,  it  is  clear,  an  absolute  ruler  of  the  character  indi- 
cated might  do  for  his  people  ;*  and  not  a  little  of  this  many 

*  This  is,  in  fact,  involved  in  the  theory  of  the  British  administration 
of  India.  The  reasons  are  well  stated  in  the  following  paragraph  from 
the  Times  of  1879  : 

"  In  England  the  remission  of  taxation  is  urged  with  great  force, 
because  it  is  said  that  taxes  remitted  will  fructify  in  the  pockets  of  the 
people.  No  result  of  this  kind  can  be  expected  in  India.  If  the  condi- 


GOVERNMENT  EXPENDITURES,  327 

a  benevolent  and  able  ruler  has  done  for  his  people.  The 
"  forced  frugality,"  to  use  Bentham's  phrase,  which  his  taxes 
have  imposed,  has  at  once  repressed  population  and  stimulated 
industry  among  the  existing  body  of  laborers.  His  wise 
expenditures  upon  public  works  and  in  public  education  has 
sown  the  seed  from  which  has  sprung  many  a  golden  harvest. 

416.  But  while  we  see,  thus,  what  an  ideal  monarch  might 
do  for  a  people  indolent,  unambitious,  sensual,  by  applying  a 
portion  of  the  wealth  they  created  to  ends  more  useful,  ele- 
vating and  satisfying  than  their  individual  tastes  and  appetites 
would  have  selected,  we  are  forced  also  to  remember  how 
large  a  part  of  the  wealth  raised  by  taxation  has,  in  all  ages, 
been  spent  in  war,  pomp  and  folly  ;  how  strong  is  the  tempt- 
ation to  extravagance  and  even  to  corruption  in  government 
expenditure  ;  how  much  of  what  the  people  pay  the  treasury 
does  not  receive  ;  how  much  of  what  the  treasury  disburses 
does  not  reach  its  intended  object.  These  considerations  are 
strong  enough  to  justify,  in  a  large  degree  if  not  wholly,  that 
unwillingness  to  intrust  to  government  the  consumption  of  the 
wealth  of  the  community,  much  beyond  what  is  necessary  to 
secure  domestic  tranquillity  and  the  administration  of  justice 
between  man  and  man,  which  is  so  peculiarly  American. 

Yet  it  is  possible  that  this  feeling  may  be  carried  too  far. 
When  one  contrasts  the  highways,  the  bridges,  the  streets, 
the  harbors,  the  breakwaters,  the  lighthouses,  and  other  aids 
to  transportation  and  commerce,  which  government  provides, 
with  the  best  that  could  reasonably  be  looked  for  from  indi- 
vidual or  associated  effort,  without  the  taxing  power  ;  when 
one  contrasts  our  system  of  public  education  with  the  best 

tions  of  living  are  made  easier  there,  as  they  would  be  by  a  remission  of 
taxes,  the  consequences  would  not  be  an  improvement  in  the  well-being  of 
the  people,  but  an  increase  of  their  numbers.  Our  duty,  therefore,  as 
guardians  and  governors  of  the  people,  charged  with  the  responsibility 
of  keeping  alive  in  times  of  famine  a  vast  population  with  no  reserved 
resources  of  its  own,  is  to  save  for  those  who  do  not  save  for  themselves, 
to  keep  a  margin  of  income  over  expenditure  so  that  we  may  have  in 
hand  a  fund  upon  which  to  draw  in  the  recurrent  periods  of  distress. 
This  is  a  leading  principle  in  Indian  finance.  Whoever  forgets  this  neg- 
lects the  primary  duty  of  an  Indian  administrator." 


328  POLITICAL  ECONOMY. 

that  voluntary  contributions  or  private  munificence  ever  sup- 
plied ;  when  one  contrasts  the  sanitary  arrangements  for  sup- 
plying pure  air  and  pure  water  to  our  crowded  cities  with  the 
condition  of  things  which  exists  where  these  matters  are  left 
to  unofficial  action  ;  he  will  -  find  occasion  to  qualify  in  no 
small  degree  his  assent  to  the  proposition  that,  under  a  well- 
ordered  constitution,  government  is  only  a  policeman,  to  keep 
people  from  breaking  each  other's  heads  or  picking  each 
other's  pockets. 


PAKT    VI  — SOME    APPLICATIONS    OF 
ECONOMIC    PRINCIPLES. 


It  has  seemed  best  to  reserve  to  this  portion  of  our  work 
the  discussion  of  some  topics  which  involve  the  application  of 
economic  principles  to  questions  of  law  or  governmental  pol- 
icy, into  which  considerations  of  political  equity  or  political 
•expediency  will  intrude  themselves  so  that  they  can  hardly  be 
shut  out  ;  and  also  to  place  here  some  matters  of  economic 
detail  which  might  have  unduly  interrupted  the  course  of  our 
argument,  had  they  been  dealt  with  at  the  points  with  which 
they  are  logically  connected. 

Throughout  this  part,  therefore,  I  may  be  found  to  adduce 
considerations  not  strictly  economic,  with  a  freedom  I  have 
not  allowed  myself  heretofore. 

The  topics  to  be  treated  under  this  title  are  : 

1.  Usury  Laws. 

2.  Industrial  Co-operation. 

3.  Political  Money. 

4.  Pauperism. 

5.  The  Doctrine  of  the  Wage -Fund. 

6.  The  Multiple  or  Tabular  Standard. 

7.  Trade  Unions  and  Strikes. 

8.  The  Knights  of  Labor. 

9.  Attacks  on  the  Doctrine  of  Rent. 

10.  Nationalization  of  the  Land. 

11.  The  Banking  Functions. 

12.  The  National  Banking  System  of  the  United  States. 

13.  Foreign  Exchanges. 

14.  Bi-Metallism. 


330  POLITICAL  ECONOMY. 

15.  The  Revenue  of  the  State. 

16.  Taxation. 

17.  "  Protection  "  vs.  Freedom  of  Production. 

18.  Socialism. 


USURT  LAWS. 

471.  The   Prejudice    against   Taking    Interest. — It   has 

already  been  said  (par.  36)  that  it  is  not  the  province  of  the 
economist  to  justify  the  existing  order  of  things,  or  to  estab- 
lish the  morality  or  the  political  equity  of  laws  or  institu- 
tions affecting  property  ;  yet  we  shall  get  so  good  a  side-light 
upon  the  economic  principles  governing  the  loan  of  capital, 
in  briefly  considering  the  objections  that  have  been  raised 
against  interest,  or  the  taking  of  usury,  as  it  is  invidiously 
called,  that  it  may  be  worth  our  while  to  step  out  of  the 
direct  path  for  a  moment,  at  this  point. 

For  many  centuries,  and  even  within  a  comparatively  recent 
period,  the  Christian  Church  proscribed  the  taking  of  interest 
as  a  moral  offense,  and  the  laws  of  nearly  all  civilized  coun- 
tries made  it  a  crime,  while  the  voice  of  publicists  and  of  ethical 
writers,  alike,  was  raised  against  it  as  a  wicked  and  pernicious 
practice.  Whence  came  this  general  consent  in  denouncing 
that  which  is  to-day  accepted  as  right  in  morals  and  as  prac- 
tically beneficial,  by  all  except  a  few  fanatics  ? 

The  origin  of  the  prejudice  against  usury  is  commonly 
attributed  to  a  mistaken  apprehension  of  a  provision  of  the 
Mosaical  Code  forbidding  the  receipt  of  interest  from  any 
member  of  the  chosen  race,  and  to  a  passage  in  the  works  of 
Aristotle,  those  works  which  once  had  so  profound  and  perva- 
sive an  influence  in  forming  the  political  philosophy  of 
Europe,  to  the  effect  that  as  money  does  not  produce  money 
nothing  more  than  the  return  of  the  principal  sum  lent  can 
equitably  be  claimed  by  the  lender. 

418.  Does  Money  Produce  Money  ?— Of  the  theological 
argument  it  is  not  necessary  to  say  much  here.  The  inhibition 


USURY  LAWS. 


331 


of  usury,  as  between  one  Hebrew  and  another,  was  doubtless 
a  feature  in  the  general  policy  adopted  for  keeping  the  peculiar 
people  apart  from  their  profane  neighbors  and  intensifying 
their  community  of  feeling.  The  dictum  of  Aristotle,  claim- 
ing no  divine  authority  but  professing  to  found  itself  on  rea- 
son, remained  unchallenged  for  ages  amid  all  the  political  spec- 
ulations of  Europe.  Mr.  McCulloch  attributes  to  John  Calvin 
the  high  honor  of  having  first  detected  the  fallacy  of  this 
argument  against  usuiy,  discerning  that,  while  money  does  not 
produce  money,  that  which  may  be  purchased  with  money  does 
produce  after  its  kind,  and  that  herein  is  a  perfect  justification 
for  the  payment  of  interest. 

Money,  does,  indeed,  not  produce  money,  but  capital  pro- 
duce, capital.  If  a  man  borrows  money  he  may  with  it  buy  grain 
which,  when  sown,  will  bring  forth  "  some  thirty,  some  sixty 
and  some  an  h  undred  fold."  He  may  purchase  cattle,  of  which 
a  small  herd  will  in  a  few  years  become  a  mighty  one.  If  he 
employs  it  in  trade  or  in  manufactures,  his  production  may  be  so 
largely  increased  thereby  that  he  may  pay  a  liberal  reward 
to  the  lender,  and  yet  be  better  off  than  if  he  had  not 
borrowed. 

407.  The  Movement  Toward  Reform. — England  led  the 
movement  toward  a  more  enlightened  policy.  By  an  act  of 
1546  *  lenders  were  allowed  to  receive  interest,  though  at  a 
rate  not  to  exceed  ten  per  cent.  During  a  brief  reaction  under 
Edward  VI.  this  law  was  repealed,  but  a  statute  of  Elizabeth 
restored  the  right  to  take  interest.  Subsequent  statutes  re- 
duced the  rate  of  legal  interest  successively  to  8,  6  and  5  per 


*  37,  Henry  VIII.  Though  thus  legalized,  public  sentiment  and  par- 
ticularly the  opinions  of  the  clergy  remained  in  a  high  degree  hostile  to 
usury.  "  I  do  wish,"  said  Dr.  Wilson,  in  his  Discourse  upon  Usury,  pub- 
lished more  than  twenty  years  after  the  act  of  Henry  VIII.,  "  some  penal 
law  of  death  to  be  made  against  usurers,  as  well  as  against  thieves  and 
murderers,  for  that  they  deserve  death  much  more  than  such  men  do  ; 
for  these  usurers  destroy  and  devour  up,  not  only  whole  families,  but 
also  whole  countries,  and  bring  all  folks  to  beggary  that  have  to  do  with 
them." 


332  POLITICAL   ECONOMY. 

cent.  (Queen  Anne),  at  which  last  point  it  remained  till  the 
present  reign,  when  all  restrictions  on  loans  were  abolished. 

Among  the  States  of  the  American  Union,  Massachusetts 
has  made  contracts  of  loans  as  free  as  those  of  purchase  and 
sale. 

Interest  is  now  allowed  to  be  paid  on  loans  in  all  civilized 
countries,  the  prohibition  of  usury  having  fallen  utterly  out  of 
the  sympathies  of  this  age.  Money-lending,  or  the  taking  of 
interest  when  payment  for  goods  or  lands  is  forborne,  has 
passed  beyond  all  stigma  ;  and  the  profession  of  the  banker, 
who  organizes  and  conducts  the  borrowing  and  the  lending  of 
whole  communities,  is  among  the  most  honorable  known  to 
modern  society.  Yet  there  still  survives  an  opinion,  very 
widely  spread,  that  the  taking  of  interest  should  be  under  the 
regulation  of  the  State,  to  prevent  the  abuses  which  are  appre- 
hended from  the  power  of  the  money-lender  over  the  needy 
and  necessitous  borrower  :  that,  to  use  Bacon's  phrase,  "  the 
tooth  of  usury  be  grinded,  that  it  bite  not  too  much." 

This  opinion  finds  expression  in  the  statutes  of  nearly  all  na- 
tions and  of  almost  every  State  of  the  American  Union,  and 
even  the  general  banking  law  of  the  United  States  provides 
that  the  associations  (National  Banks)  to  be  organized  there- 
under may  receive  interest  at  the  rate  allowed  by  the  laws  of 
the  State,  Territory  or  District  where  they  are  located,  and  no 
more,  and  that,  where  no  local  rate  is  fixed  by  law,  the  rate  of 
interest  shall  not  exceed  seven  per  cent.,  to  be,  however,  taken 
in  advance  (discounted). 

420.  Laws  Regulating  Interest.— All  civilized  nations  hav 
ing  legalized  the  taking  of  interest  on  loans,  the  term,  usurj 
laws,  as  applied  to  existing  legislation,  has  reference,  not  tc 
the  prohibition  of  interest  but  to  its  regulation,  generally 
through  the  means  of  a  prescribed  maximum  rate  which  it  is 
made  unlawful  to  exceed.  As  has  been  stated,  such  laws  still 
stand  on  the  statute  books  of  highly  civilized  states.  What  shall 
be  said  of  them  ?  As  a  substitute  for  the  laws  that  forbade 
the  taking  of  interest  they  must  be  regarded  as  in  the  nature 
of  enlightened  legislation,  and  I  am  not  sure  that,  even  when 
considered  without  comparison  with  pre-existing  legislation, 


USURY  LAWS.  333 

these  laws  were,  in  an  earlier  time,  wholly  without  justification. 
They  were  enacted  in  the  interest  of  the  would-be  borrower, 
who  was  regarded  as  unable  to  sustain,  without  grave  injury, 
which  might  also  work  injury  to  the  community,  the  competi- 
tion to  which  he  was  subjected  in  his  efforts  to  secure  the  loan 
of  capital.  And  in  the  ages  in  which  these  laws  were  enacted, 
this  assumption  was  not  without  reason. 

421.  Usury  Laws  in  Early  Ages. — Borrowers  were,  then 
generally  persons  embarrassed  or  distressed,  whether  by  their 
own  fault  or  by  misfortune.  Trade  and  manufactures  were 
not,  as  so  largely  now,  carried  on  by  means  of  borrowed  capi- 
tal. The  man  who  asked  a  loan  was  presumably  in  circum- 
stances which  put  him  very  much  at  the  mercy  of  the  money 
lender,  just  as  a  man  in  times  of  famine  is  at  the  mercy  of  the 
dealer  in  food,  who  may  make  unreasonable,  extortionate  and 
oruel  terms. 

And  the  money  lender  in  those  days  was  not,  in  general,  a 
nice  sort  of  person.  The  recent  outbreaks  in  Roumelia,  Rou- 
mania  and  Russia  testify  to  the  natural  feelings  of  a  simple- 
minded,  ignorant,  passive,  and  more  or  less  stupid  people,  who 
see  houses  and  lands  and  cattle  and  goods  and  even  standing 
crops  pass  with  fatal  certainty  out  of  the  hands  of  the  many 
into  the  hands  of  a  class  in  whom  the  faculty  of  acquisition  is 
developed  to  such  a  degree  as  to  make  them,  in  comparison 
with  a  peasantry  like  that  of  the  Slavonic  States,  as  wolves 
among  sheep. 

We  allow  all  men  to  walk  our  streets  indifferently,  because 
men  are  so  constituted  physically  as  to  be  substantially  equal, 
so  far  as  contact  is  concerned.  We  brush  each  other  and 
sometimes  run  full  against  each  other,  and  yet  give  and  take 
no  harm.  But  suppose  one-half  the  people  of  our  cities  were 
as  fragile  and  brittle  as  glass,  while  the  other  half,  divided  on 
the  line  of  sex,  or  otherwise,  were  as  heavy  and  as  hard  as 
iron,  would  not  the  law  require  the  latter  to  go  by  separate 
streets,  and  protect  the  weaker  part  of  the  community  from  a 
contact  that  would  be  fatal  ?  ' 

I  am  not  at  all  sure  that  economic  reasons  would  not  justify 
the  legislature  in  interfering  to  save  by  any  practicable  means 


334  POLITICAL  ECONOMY. 

one  class  in  the  community  from  the  effects  of  such  one-sided 
competition  as  existed  between  borrower  and  lender  in  the 
ages  referred  to  ;  nor  am  I  sure  that  the  kind  of  laws  referred 
to  were  wholly  without-  the  beneficent  effects  they  were 
intended  to  have. 

422.  Evasion  of  Usury  Laws.— Even  in  the  ages  when  the 
taking  of  interest,  in  any  form,  was  strictly  prohibited  under 
the  most  cruel  penalties,  usury  laws  were  very  frequently 
evaded,  through  a  great  variety  of  artifices  and  contrivances. 
In  modern  times,  the  laws  prescribing  a  maximum  rate  of 
interest,  generally  under  penalties  of  moderate  severity,  are, 
it  may  be  said  as  a  rule,  violated  or  evaded,  whenever  the  use 
of  capital*  becomes  more  valuable  than  the  consideration 
allowed  by  law  to  be  paid,  be  that  'five  per  cent.,  or  six,  or 
seven,  or  more. 

The  most  important  means  of  evading  the  usury  laws  are 
the  following  : 

First.  Fictitious  Deposits  in  Bank. — Every  successful  mer- 
chant and  manufacturer  will,  of  course,  keep  a  considerable 
deposit  to  his  credit  in  the  bank  or  banks  with  which  he 
habitually  deals.  He  will  do  this  to  protect  himself  against 
the  failure  of  remittances  from  his  own  correspondents,  to 
enable  him  to  meet  unanticipated  demands,  perhaps  to  take 
advantage  of  exceptionally  good  bargains  suddenly  offering. 

What  we  have  now  in  mind  is  the  keeping  of  deposits  in 
bank,  in  excess  of  what  the  merchant  or  manufacturer  would 
naturally  maintain  for  his  own  purposes,  as  an  inducement  to 
the  bank  to  loan  him  capital  in  emergencies.!  Thus,  we 

*  The  reader  is  referred  to  par.  286  for  the  demonstration  that  interest 
is  paid  for  the  use  of  capital,  not  always,  not  generally,  not  often,  for  the 
use  of  money,  as  such.  In  the  present  article,  however,  in  writing  of 
usury  laws  and  the  means  of  evading  them,  I  shall  use  the  phrases  of  the 
so-called  Money  Market,  more  properly  the  market  for  the  loan  of  capi- 
tal ;  and  shall  speak  of  money  being  scarce,  money  being  worth  such  a 
per  cent.,  etc.,  meaning  always  thereby,  capital. 

f  Samuel  Jones  Lloyd,  afterwards  Lord  Overstone,  in  his  testimony 
before  the  British  Commons  Committee  of  1841,  said  :  "  The  compensa- 
tion to  the  banker  for  his  loss  in  advancing  money  upcn  discount,  at  a 


EVASION  OF   USURY  LAWS.  335 

might  suppose  that  a  certain  merchant  or  manufacturer  finds 
it  for  his  interest  to  keep  "  a  line  of  deposits,"  in  a  certain 
bank,  averaging  twenty  thousand  dollars.  This  he  might 
deem  sufficient  for  all  his  own  purposes.  In  order,  however, 
to  make  sure  that  the  bank  will  discount  his  notes  when 
"  money  is  scarce,"  he  may  think  it  worth  while  to  maintain 
an  average  deposit  of  fifty  thousand  dollars.  He  gives  the 
bank  the  use,  all  the-  time,  of  thirty  thousand  dollars,  with  the 
implied  understanding  that  the  bank,  on  its  part,  will  loan 
him  all  it  possibly  can,  in  periods  of  financial  difficulty.  This 
course  is  pursued  to  a  very  great  extent.  It  is  natural  that 
wealthy  merchants  and  manufacturers  should  in  this  way  pro- 
tect themselves  against  emergencies  ;  but  this  only  makes  it 
all  the  harder  for  those  who  can  not  afford  to  keep  large 
deposits  in  ordinary  times  to  borrow  what  they  may  absolutely 
require  in  periods  of  pressure  or  distress. 

Second.  Commissions. — Suppose  the  law  to  prescribe  that 
interest  shall  not  be  taken  above  six  per  cent,  per  annum.  A 
merchant  has  occasion  to  borrow  ten  thousand  dollars  for  two 
months.  On  this  the  maximum  legal  interest  would  be  one 
hundred  dollars.  But  the  demand  for  capital,  at  the  time,  is 
so  great,  or  the  supply  of  it  so  small,  owing  to  the  prevalence 
of  speculation  or  to  the  existence  of  commercial  distrust,  that 
no  one  is  willing  to  lend  ten  thousand  dollars,  two  months,  for 
so  little  as  one  hundred  dollars.  Our  merchant  goes  to  a 
broker  and  says  :  "  I  wish  to  borrow  so-and-so,  and  I  will 
give  you  one  per  cent,  for  negotiating  the  loan."  Now,  one 
per  cent,  commission  on  ten  thousand  dollars  is  one  hundred 
dollars  :  so  that  the  would-be  borrower  really  promises  to 
pay  at  the  rate  of  twelve  per  cent,  per  annum.  Since  he  is  in 
this  frame  of  mind,  there  is  no  longer  any  difficulty  about 
getting  the  loan.  The  probabilities  are  that  the  broker 
divides  his  commission  with  the  lender. 

Third.  Fictitious  or  " Dry  "  Exchange* —  Let  us  suppose 

rate  below  its  real  value,  would  be  found  in  the  value  of  the  accounts 
kept  with  him  by  the  parties  to  whom  such  advances  were  made." 

*In  his  standard  work  on  usury,  Plowden  states  that  "  Dry  Exchange  ' 
was  sometimes  carried,  in  his  day,  to  a  very  great  extent.  The  borrower 


336  POLITICAL  ECONOMY. 

the  would-be  borrower,  in  the  case  referred  to,  goes  to  his  bank 
and  offers  his  note  for  ten  thousand  dollars,  payable  in  sixty 
days.  The  cashier  says,  "  We  can  not  discount  this  note  ;  but 
if  you  will  make  it  payable  in  New  York,  we  will  try  to  put 
it  through  for  you."  This  is  done.  At  maturity,  the  note  is 
paid  in  New  York.  The  bank  charges  one-half  per  cent. 
"  exchange,"  theoretically  for  bringing  the  money  home,  though 
it  may  be  that  the  bank  would  at  the  time  rather  have  its 
money  in  New  York  than  in  Boston.  Now,  one-half  per  cent, 
exchange  on  ten  thousand  dollars  is  fifty  dollars,  which  is 
three  per  cent,  on  a  loan  of  that  amount  for  two  months.  This 
added  to  the  six  per  cent,  interest  which  the  bank  is  author- 
ized to  charge,  makes  nine  per  cent,  received  by  the  bank  in 
this  transaction. 

Both  the  first  and  the  third  of  these  modes  of  evading  usury 
laws  are  completely  within  the  law.  A  man  has  a  right  to 
keep  as  large  deposits  as  he  pleases  in  his  bank  ;  the  bank  has 
a  right  to  charge  whatever  rate  of  exchange  may  be  mutually 
agreed  upon  for  bringing  money  from  a  foreign  country  or  a 
distant  city.  Dividing  the  commission  between  the  broker 
and  the  lender  is  unlawful  ;  but  it  can  be  so  easily  and  secretly 
done  as  to  be  practically  beyond  any  danger  of  incurring 
penalties. 

Fourth.  Loans  for  Unnecessarily  Long  Periods. — To  illus- 
trate this  mode  of  defeating  the  intention  of  usury  laws,  let  us 
return  to  the  case  of  the  merchant,  who,  in  time  of  commer- 
cial trouble,  has  occasion  to  borrow  ten  thousand  dollars  for 
two  months.  He  offers  his  note  for  that  amount,  on  that  time, 
to  a  bill  broker,  who  replies  :  "  I  can  not  get  this  discounted 
for  you  ;  but,  if  you  will  make  out  your  note  for  a  year*  I 

"  draws  "  on  an  imaginary  person  in  a  foreign  country.  After  the  expir- 
ation of  the  time  the  bill  is  to  run,  comes  a  "  protest  "  from  that  country 
for  the  non-payment  of  the  bill,  with  the  re-exchange  of  the  money  thence 
to  the  place  where  the  money  was  drawn,  the  paper  having,  in  fact,  never 
been  out  of  the  country.  "  The  borrower,"  says  this  writer,  "  being  thus 
charged  with  exchange,  re-exchange,  protest  and  incidental  expense,  pays 
in  all,  some  twenty  or  thirty  per  cent." 
*A  witness  before  the  Commons  Committee  of  1841.  testified  that  he  once 


EFFECTS   OF   USURY  LA  WS.  337 

will  get  you  the  money,  at  the  legal  rate."  This  is  done. 
The  lender  sacrifices  his  chance  of  getting  his  eight  or  ten 
per  cent,  through  some  roundabout  method,  during  two 
months,  for  the  sake  of  placing  his  capital,  at  the  maximum 
legal  rate,  for  an  entire  year.  He  believes  that  the  stringency 
in  the  market,  which  now  makes  "  money  "  really  worth  eight 
or  ten  per  cent,  will  soon  be  over.  In  that  case,  interest  will 
probably  fall  below  the  legal  rate  ;  perhaps  during  a  greater 
part  of  the  year  capital  may  be  "a  drug,"  at  three  or  four  per 
cent.  The  lender  may  thus  be  better  off  in  making  the  bor- 
rower pay  six  per  cent,  for  twelve  months,  than  if  he  had  taken 
from  him  eight  or  ten  per  cent,  for  two  months,  to  have  his 
capital  thrown  back  on  his  hands  at  the  expiration  of  that  time. 

423.  Economic  Effects  of  Laws  Prescribing  a  Maximum 
Rate  of  Interest.— Such  are  the  most  important  of  the  means 
resorted  to  for  evading  the  laws  establishing  a  maximum  rate 
of  interest.  It  must  not  be  thought  that,  because  usury  laws 
may  thus  be  evaded,  they  have,  therefore,  no  economic  effect. 
On  the  contrary,  they  exert  a  very  considerable  influence. 

(«.)  These  underhand  or  roundabout  modes  of  doing  busi- 
ness must  cost  somebody  something. 

Now,  the  person  on  whom  this  charge  is  likely  to  rest  is  he 
who,  in  the  time  and  place,  occupies  the  position  of  relative 
economic  disadvantage.  This,  it  is  needless  to  say,  is,  in 
times  of  financial  trouble,  the  borrower,  who  must  have  the 
money  or  submit  to  great  loss,  perhaps  to  ruin. 

(b.)  More  important,  still,  among  the  effects  of  usury  laws, 
is  the  destruction  of  an  open  market  for  the  loan  of  capital, 
and  the  preventing  of  a  quotable  rate  of  interest.  When  the 
actual  rate  goes  above  the  legal  rate,  and  borrowers  and 
lenders  are  driven  to  roundabout  and  underhand  methods  of 
making  up  the  difference,  nobody  knows  "  what  money  is 
worth."  The  borrower,  under  a  terrible  necessity  to  secure 

negotiated  in  a  period  of  stringency  a  loan  of  £100,000  to  a  mercantile 
house,  for  the  term  of  seven  years,  although  the  borrowers  only  wanted 
the  use  of  the  capital  for  a  few  months,  and  would  have  been  glad  to  take 
it  for  that  time,  at  a  high  rate  of  interest,  had  this  been  permitted  by  the 
law. 


338  POLITICAL  ECONOMY. 

a  loan,  lest  his  notes  should  "go  to  protest,"  and  he  be 
financially  dishonored  and  perhaps  ruined,  is  practically 
blindfolded,  at  the  moment  of  his  greatest  weakness  and  need. 
The  more  anxious  he  is,  the  more  completely  is  he  at  the 
mercy  of  the  lenders,  who,  in  such  a  case,  have  a  common 
interest  in  creating  the  impression  that  "  money "  is  very 
scarce  and  fast  growing  scarcer.  Every  borrower  who  becomes 
frightened  spreads  fear  on  every  side  around  him,  until  per- 
chance a  panic  prevails,  and  borrowers  submit  to  every  degree 
of  extortion. 

(c.)  Even  more  important  than  the  loss  to  the  borrowing 
class  through  the  most  exorbitant  rates  of  interest,  is  the  sac- 
rifice of  stocks  of  goods,  securities,  bonds,  etc.,  to  which  many 
merchants  are  driven,  in  times  of  commercial  distress,  through 
the  difficulties  and  delays  interposed  by  the  laws  regulating 
the  loan  of  capital.*  Many  a  man  in  such  a  case,  either 
because  he  has  not  the  time  to  negotiate  a  loan  by  artifice,  or 
because  his  credit  is  not  of  the  best,  or  because  he  is  driven  to 
desperation,  will  sell  goods  consciously  at  a  great  disadvan- 
tage. Oftentimes,  such  a  man  has  to  submit  to  a  sacrifice  of 
five,  ten,  or  fifteen  per  cent,  of  the  value  which  the  goods  had 
a  week  before,  and  which  they  perhaps  will  have  a  month 
later.  Now,  to  sacrifice  only  five  per  cent,  on  a  body  of 
goods,  in  order  to  get  through  one  month  of  financial  strin- 
gency, is  equivalent  to  borrowing  capital  for  that  length  of 
time,  at  the  rate  of  sixty  per  cent.,  per  annum  !  How  much 
more  would  it  have  been  for  this  man's  advantage,  had  the 
law  permitted  him  to  go  into  an  open  market  for  the  loan  of 
capital,  and  there  pay  whatever  its  use  was,  at  the  time, 
worth,  were  that  nine,  or  twelve,  or  fifteen,  or  eighteen  per 
cent. ! 

424.  Usury  Laws  in  Communities  Mainly  Non-Commer- 
cial.— We  have  spoken  of  the  relations  of  the  borrower  to  the 

*  It  is  to  this  Lord  Bacon  alludes  when  he  says,  "  Were  it  not  for  this 
easy  borrowing  upon  interest,  men's  necessities  would  draw  upon  them  a 
most  sudden  undoing,  in  that  they  would  be  forced  to  sell  their  means 
(be  it  lands  or  goods)  far  underfoot ;  and  so  whereas  usury  doth  but  gnaw 
upon  them,  bad  markets  would  swallow  them  quite  up." 


EFFECTS   OF   USURY  LAWS.  339 

lender  of  capital,  in  a  primitive  condition  of  industrial  society, 
before  business  has  come  to  be  carried  on  by  loans  of  capital, 
and  while  borrowers  are  generally  distressed  persons.  We 
have,  also,  referred  to  the  relations  of  the  borrower  and  the 
lender,  in  communities  having  a  high  commercial  and  finan- 
cial organization.  Intermediate  between  these  two  conditions 
is  a  state  of  society,  such  as  characterizes  extensive  regions  of 
the  United  States,  to-day,  where  agriculture  is  prosperous, 
where  industry  has  made  some  progress,  yet  where  the  com- 
munity still  remains  mainly  non-commercial.  This  state  of 
society  is  commonly  left  out  of  account  by  writers  who  oppose 
usuiy  laws.  I  do  not,  however,  deem  it  candid  to  omit  com- 
munities of  this  character  altogether  from  consideration,  or  to 
assume  that  conclusions  which  we  may  have  drawn  from  the 
study  of  a  highly  advanced  commercial  society  will  apply  to 
these,  without  qualification. 

On  the  whole,  I  do  not  think  that  the  question  of  the 
effect  of  usury  laws  in  a  mainly  agricultural  community,  in 
modern  times,  is  quite  so  simple  as  most  writers  have  treated 
it  as  being.*  On  the  one  hand,  I  have  no  doubt  that  the 
fixing  of  a  legal  rate  of  interest  has  a  certain  effect  upon  the 
disposition  of  owners  of  capital  in  lending  that  capital.  We 
have  seen  (par.  147)  that  the  moral  and  intellectual  elements 
of  supply  and  demand  are  very  potential  in  exchange.  I  have 
no  doubt  whatever,  that  the  current  rate  of  interest,  in  a 
country  where  a  rate  is  fixed  by  law,  sometimes  affords  an 
example  of  the  operation  of  this  force. 

Again,  I  have  no  doubt  that  the  influence  of  penalties 
threatened  for  exceeding  a  certain  rate  of  interest,  in  a  commun- 
ity chiefly  non-commercial  and  of  simple  industrial  organiza- 
tion and  where  the  element  of  personal  acquaintance  largely 
enters  into  all  relations  of  man  with  man,  is  distinctly  felt  in 
inducing  some  persons  to  accept  the  legal  rate,  if  that  be 

*"It  is  in  vain,"  says  John  Locke,  "to  go  about  effectually  to 
reduce  the  price  of  interest  by  a  law  ;  and  you  may  as  rationally  hope 
to  set  a  fixed  rate  upon  the  hire  of  houses,  or  ships,  as  of  money."  And 
elsewhere  this  eminent  philosopher  calls  a  law  to  regulate  the  rate  of 
interest  "  a  law  to  hedge-in  the  cuckoo." 


340  POLITICAL  ECONOMY. 

fixed  tolerably  near  the  ordinary  market  rate,  so  that  the 
temptation  to  evade  the  law  is  not  overwhelming.  On  the 
other  hand,  it  is  equally  clear  that  such  provisions  of  law  may 
be  evaded  by  the  various  means  recited,  and  probably  will  be 
evaded  whenever  the  inducement  offered  is  very  great  ;  and 
that,  so  far  as  borrowers  are  driven  to  shifts  to  disguise  excess 
of  usury,  they  are  likely  to  find  themselves  worse  off  than 
they  would  be  in  an  open  market. 

Just  where  the  balance  would  be,  in  such  a  community  as 
has  been  described,  so  far  as  the  interests  of  the  ordinary 
agricultural  borrower,  or  small  country  trader  or  mechanic,  are 
concerned,  I  confess  I  do  not  feel  confident ;  and  I  doubt  if 
any  man  knows  enough  to  say  rightly  even  to  which  side  the 
balance  might  incline  in  a  community  composed  of  men 
of  different  race,  or  of  different  traditions  and  social  habits, 
from  those  whom  he  has  been  accustomed  personally  to 
observe. 

425.  Usury  Laws  in  Highly  Commercial  Communities. 
— But  in  any  modern  commercial  community  of  large  and 
varied  and  complicated  industrial  concerns,  the  case  is  a 
simple  one. 

In  an  advanced  state  of  industrial  society,  where  borrow- 
ing is  no  longer  the  resort  of  the  embarrassed  and  distressed, 
alone,  or  mainly,  but,  on  the  contrary,  the  most  flourishing 
trade  and  manufactures  are  carried  on  chiefly  by  means  of 
borrowed  capital  ;  where,  in  the  usual  course  of  prosperous 
business,  notes  are  made  and  are  paid  by  the  thousands,  every 
day,  usury  laws  become  purely  mischievous. 

First,  because  the  vastly  greater  interests  of  trade  and 
industry  would  properly  outweigh,  were  society  called  to 
choose  between  them,  the  interests  of  distressed  and  embar- 
rassed individuals  ;  and, 

Secondly,  because  such  persons  will,  in  fact,  benefit  by  the 
greater  plentifulness  of  capital,  the  greater  ease  of  borrowing, 
and  the  consequently  lower  rate  of  interest,  which,  in  general, 
result  from  freedom  regarding  contracts  for  loan.  The 
business  classes,  active,  alert,  aggressive  in  competition,  make 
rates  of  interest  by  which  the  less  fortunate  profit. 


WHA  T  IS  CO-  OPERA  TION  f  34  r 

II. 

INDUSTRIAL  CO-OPERATION. 

427.  The  Objects  of  Co-operation.— In  Part  IV.  we  have 
shown  the  place  in  the  scheme  of  distribution  that  is  to  be 
occupied  by  what  is  termed  co-operation,  should  that  project 
be,  in  any  appreciable  degree,  realized.  We  said  that  the 
object  of  co-operation,  in  the  technical  sense  in  which  that 
word  has  been  used  by  economic  writers,  and  even  popularly 
used,  since  the  Revolution  of  1848,  is  to  get  rid  of  the  "  entre- 
preneur," or  employer,  as  an  industrial  agent. 

It  is  evident  that  if  the  parties  to  production,  other  than  the 
landlord,  are  to  be  thus  reduced  to  two,  that  function  may  be 
performed  either  by  the  capitalist  class  or  by  the  laboring  class. 
The  capitalists  may,  as  such,  become  employers  of  labor  :  that 
is,  each  capitalist  may  become  an  employer  because  he  is  a  capi- 
talist, and  in  the  degree  in  which  he  possesses  capital.  Whereas, 
now,  only  a  small  fraction  of  the  owners  of  capital  are  also 
employers  of  labor.  In  this  case,  interest  and  profits  would 
be  united.  In  the  other  case,  the  laborers  may  become  self- 
employed,  taking  all  the  responsibilities  of  production,  borrow- 
ing capital  according  to  their  occasions  for  its  productive  iise, 
and  paying  a  remuneration  therefor  on  the  principles  here- 
tofore determined.  In  this  case,  wages  and  profits  would  be 
united. 

The  latter  is  the  change  in  industrial  organization  which  is 
in  contemplation  when  co-operation  is  urged.  It  is  in  the 
interest  of  the  laboring  classes,  not  of  the  owners  of  capital, 
that  the  employer  is  to  be  extruded  from  the  industrial  system 
and  his  profits  brought  to  re-enforce  wages.  The  whole  signifi- 
cance of  co-operation,  as  a  scheme  of  industrial  reform,  lies  in 
this :  that  the  laboring  classes  expect  to  divide  among  themselves 
the  large  amount  of  wealth  which  they  now  see  going,  day 
by  day,  into  the  possession  of  their  employers,  as  profits. 

427.  Mistaken  Conception  of  the  Economists — But, 
although  tne  laboring  classes  fully  understand  this,  and  know 


.342  POLITICAL  ECONOMY. 

precisely  what  co-operation,  if  effected,  would  mean  to  them, 
the  political  economists,  unfortunately,  by  reason  of  that 
incomplete  analysis  of  the  productive  agencies  to  which  we 
have  before  adverted  (par.  304),  are  unable  to  give  an  intelligi- 
ble, or  even  self-consistent  account  of  co-operation.  Not 
more  than  two  or  three  English  or  American  economists*  have 
given  a  definition  of  co-operation  which  will  bear  examination. 
Why  is  this  ?  Because,  having  persistently  refused  to  regard 
the  function  of  the  employer,  they  can  not,  consistently  with 
their  own  analysis  of  production,  give  account  of  a  scheme 
whose  whole  object  is  the  elimination  of  that  "  functionary," 
as  Prof.  Rogers  calls  him.  Yet,  seeing,  as  they  must,  that 
co-operation  really  attempts  something,  and  would,  if  effected, 
essentially  change  the  existing  organization  of  industry,  they 
hit  upon  the  utterly  erroneous  explanation  that  co-operation 
is  to  get  rid  of  the  capitalist !  Hardly  an  economist  but 
blunders  at  this  point. 

428.  Prof.  Cairnes's  Statement.— Take  a  writer  so  justly 
celebrated  for  clearness  of  thinking  as  the  late  Prof.  Cairnes. 
The  frequency  with  which  he  has  been  quoted  in  these  pages 
is  evidence  of  the  high  respect  in  which  his  work  is  held  by 
the  writer.  Yet  Prof.  Cairnes  stumbles  at  the  very  threshold 
of  the  subject.  "  The  characteristic  feature  of  co-operation," 
lie  says,  "  looked  at  from  the  economic  point  of  view,  is  that 
it  combines  in  the  same  persons  the  two  capacities  of  laborer 
and  capitalist," 

Now,  it  is  not  at  all  of  the  essence  of  co-operation  that  the 
laborers  should  be  capitalists  ;  that  they  should  furnish  any 
portion  of  the  capital  required  for  conducting  the  operations 
to  be  undertaken  under  this  system.  It  is,  of  course,  probable 
that  some,  perhaps  most,  of  the  co-operators  would,  in  fact 
(though,  as  we  have  said,  this  is  not  of  the  essence  of  the 

*Prof.  Thorold  Rogers  defines  co-operation  justly,  as  "  a  scheme  .  .  . 
by  which  the  laborer  can  unite  the  functions  and  earn  the  wages  of  laborer 
and  employer,  by  superseding  the  necessity  of  using  the  services  of  the  latter 
functionary." 

Prof.  Amasa  Walker  had  previously  given  expression  to  the  same  con- 
ception of  co-operation. 


WHAT  IS  CO-OPERATION ?  343. 

scheme),  own  small  amounts  of  capital  ;  and  the  aggregate 
sum  so  held  would  be  put  into  the  co-operative  business,  and,  by 
that  amount,  the  sum  to  be  borrowed  of  outsiders  would  be 
reduced.  Yet,  in  order  to  secure  justice  between  those  co-op- 
erators who  had  and  those  who  had  not  capital  to  put  in  the  busi- 
ness, between  those  who  had  much  and  those  who  had  little, 
it  would  be  necessary  that  each  associate  who  put  capital  into 
the  business  should  be  remunerated  for  his  abstinence  and  for 
the  risk  of  his  principal,  by  a  payment  over  and  above 
what  an  associate  contributing  only  through  his  labor  would 
receive. 

In  other  words,  the  co-operative  company  would  pay  inter- 
est to  its  own  members  for  the  use  of  whatever  capital  they 
could  command,  and  would  borrow,  on  interest,  the  remaining 
capital  required,  just  as  the  employer  now  does.  The  co-op- 
erative workmen  who  were  so  fortunate  as  to  "possess  capital 
would  lend  it  to  their  own  company,  instead  of  lending  it,  as 
now,  through  the  agency  of  the  bank  or  the  savings  institution, 
to  employers  of  labor,  perhaps  to  their  own  employers. 

Just  so  far  as  a  laboring  man  joining  a  co-operative  associa- 
tion had  the  courage  and  faith  and  self-control  to  save  out  of 
his  earnings,  he  would  become  a  capitalist,  exactly  as  if  he  were 
not  a  co-operator.  If,  however,  he  chose  to  indulge  himself 
by  eating  and  drinking  up  all  he  earned,  he  would  remain  no 
capitalist,  in  spite  of  co-operation.  Co-operation  can  not  make 
a  man  a  capitalist.  Nothing  can  do  that  but  saving,  and  while 
co-operation  might,  and  doubtless  would,  encourage  frugality, 
no  scheme  of  man's  devising  is  going  to  radically  change 
man's  nature  so  that  a  large  proportion  of  the  community  will 
not  consume  all  their  incomes — be  those  incomes  large  or 
small. 

We  see,  thus,  how  erroneous  is  Prof.  Cairnes's  definition. 
The  aim  of  co-operation  is  to  get  rid  of  the  employer,  and 
divide  his  profits  among  his  former  workmen,  who  are  to 
become,  for  the  future,  self-employed:  to  organize  themselves^ 
in  their  own  way,  for  industrial  purposes,  and  carry  forward 
production  on  their  own  account  and  at  their  own  risk. 

429.  The  Benefits  Aimed  at  by  Co-operation.— Such  being 


344  POLITICAL  ECONOMY. 

the  nature  of  co-operation,  let  us  inquire  what  advantages 
might  reasonably  be  looked  for  from  it,  provided  it  were  found 
practicable. 

Let  us  begin  by  taking  the  laborer's  point  of  view  : 

First.  To  secure  for  the  laboring  class  that  large  amount 
of  wealth,  which,  as  we  have  seen,  goes  annually  in  profits  to 
the  employer. 

Second.  To  secure  for  the  laborer  the  opportunity  to  pro- 
duce independently  of  the  will  of  an  employer.  Under  the 
existing  industrial  system,  it  remains  with  the  entrepreneur 
to  decide,  not  only  what  shall  be  produced,  and  how  and  when 
and  in  what  amounts,  but  also  whether  any  production  at 
all  shall  take  place. 

It  is  true  that  the  employer  may,  out  of  compassion,  carry 
on  production  for  a  while  where  no  profit  to  himself  appears, 
rather  than  leave  his  working  people  to  suffer.  It  is  also  true 
that  his  selfish  interests  may  induce  him  to  carry  on  produc- 
tion for.  a  while,  under  similar  conditions,  in  order  to  keep  his 
customers  from  going  to  others.  But  neither  of  these  consid- 
erations can  be  relied  upon  to  any  great  extent  or  for  any  long 
period,  nor  can  both  together  be  relied  upon  at  all  as  against 
the  apprehension  of  considerable  loss  on  the  part  of  the 
employer.  In  a  state  of  the  market  which  causes  the  employer 
to  doubt  whether,  after  paying  out  large  sums  for  materials 
and  labor,  he  will  get  his  money  back  in  the  price  of  the  prod- 
ucts, a  suspension  of  production  to  the  extent  of  a  third  or  a 
half  is  the  most  natural  course  for  him  to  adopt. 

But  while  a  body  of  laborers  can  not  reasonably  complain 
that  their  employer  curtails  production  on  the  first  intimation 
of  commercial  disorder  or  of  diminishing  demand,  co-opera- 
tion would  place  it  within  their  power  to  keep  up  production 
on  their  own  responsibility,  remaining  at  work  and  selling 
their  product  for  what  it  would  bring.  It  would  no  longer 
be  the  interest  of  the  one  employer,  but  that  of  the  many 
workmen,  which  should  decide  whether  production  were  to 
proceed  or  not. 

43O.  Co-operation  from  the  Point  of  View  of  the  General 
Economic  Interest. — The  foregoing  are  the  two  chief  benefits 


ADVANTAGES   OF  CO-OPERATION.  345 

which  the  laboring  class  have  looked  to  co-operation  to  secure 
for  them.  In  addition  to  these,  the  political  economist  beholds 
in  co-operation  three  sources  of  advantage.  First :  Co-opera- 
tion would,  by  the  very  terms  of  the  case,  do  away  with  strikes. 
The  employer  disappearing,  the  workman  becoming  self-em- 
ployed, these  destructive  contests  would  disappear  also. 
Second  :  The  workman  would  be  incited  to  greater  industry 
and  to  greater  carefulness  in  dealing  with  materials  and  with 
machinery.  Third  :  In  no  small  degree  frugality  would  be 
encouraged.  It  can  not  be  doubted  that  a  co-operative  laborer 
having  the  opportunity  to  invest  his  savings  at  once  in  his  own 
business  would  feel  a  much  stronger  inducement  to  frugality 
than  does  the  wage  laborer. 

431.  Co-operation,  from  a  Still  Higher  Point  of  View. 
— We   may   leave   to    the   moralist    or   the   statesman    the 
additional  consideration  that  co-operation  would  clearly  tend 
to  improve  the  moral,   social  and  political  character  of  the 
workman,  by  giving  him  a  larger  stake  in  society,  making  his 
remuneration  directly  dependent  on  his  own  exertions,  and 
admitting   him  to   a  participation  in  the    deliberations   and 
decisions  of  industry. 

432.  The  Difficulties  of  Co-operation.— The  advantages 
which  would  attend  the  successful  establishment  of  co-opera- 
tion being  so  many  and  so  great,  it  may  be  asked  why  has 
this  scheme,  proposed  so  long  ago,  sanctioned  by  the  highest 
economic  authority,  appealing  directly  to  the  self-interest  of 
the  laboring   classes,    advertised    extensively   in   discussions 
relating  to  labor  and  wages,  not  been  immediately  successful, 
on  a  large  scale  ?     How  is  it,  that,  on  the  contrary,  co-opera- 
tion can  hardly  be  said  to  have  escaped  failure,  when  one  con- 
siders the  great  number  of  enterprises  of  this  character  which 
have  been  started  and  the  few  that  have  survived  ? 

Co-operative  enterprises  may  be  divided  into  two  classes — 
one  attempting  what  we  may  call  Productive  co-operation  ; 
the  other  what  we  may  call  Consumptive  *  co-operation.  In 
enterprises  of  the  former  class,  the  laborer  seeks  to  make  for 
himself  an  income  ;  in  the  latter  he  seeks  to  expend  or  consume 

*  By  many  called  Distributive. 


346  POLITICAL  ECONOMY. 

that  income  to  the  best  advantage  :  to  make  each  dollar  of  his 
daily  or  weekly  earnings  go  as  far  as  possible  in  providing 
subsistence  for  himself  and  family.  Of  course,  all  the  agen- 
cies of  transportation  and  exchange  are,  as  we  have  stated, 
productive  ;  yet  in  the  difference  of  aim  which  has  been 
shown  to  exist  between  the  two  classes  of  co-operative  estab- 
lishments, is  found  the  justification  of  the  distinction  indicated. 

433.  Consumptive  Co-operation  has  had  no  inconsiderable 
degree  of  success  in  England,  in  the  way  of  shops  for  the 
sale  of  flour,  meats,  groceries  and  other  articles  of  domestic 
consumption,  at  which  subscribers  or  members  of  the  associa- 
tions establishing  such  shops  buy  goods  at,  perhaps,  the  usual 
prices  of  retail  trade,  generally  for  cash,  the  profits  of  the 
year  or  the  season,  after  deducting  the  expenses  of  supervision 
and  management,  being  divided  among  the  members,  either 
equally  or  in  the  proportion  of  their  purchases. 

In  the  United  States,  the  indifference  of  the  people,  even  of 
the  poorer  classes,  towards  small  savings  and  that  same  unwill- 
ingness to  take  pains  to  secure  a  sound  administration  of 
trusts  which  has  permitted  municipal  and  State  governments 
to  fall  so  largely  into  the  hands  of  unworthy  persons,  have 
combined  to  limit  very  narrowly  the  application  of  the  scheme 
of  consumptive  co-operation.  Here  and  there,  "union" 
stores  (the  word  store  being  used  very  generally  in  the  United 
States  in  the  sense  in  which  the  English  use  the  word  shop), 
"  Granger  "  stores,  or  "  Sovereigns  of  Industry  "  stores,  fill  a 
small  place,  generally  for  a  brief  period,  in  the  general  system 
of  exchange  ;  but  these  have  never  become  highly  important 
agencies  in  our  public  economy. 

434.  Productive  Co-operation. —  But   while    consumptive 
co-operation  has  had  a  degree  of  success  which  at  least  proves 
it  to  be  a  practicable  scheme,  given  only  a  reasonable  degree  of 
popular  interest  in  its  maintenance,  the  history  of  productive 
co-operation   alike  in  France,  where  it  may  be  said  to  have 
originated,  in  England,  and  in  the  United  States,  has  been  of 
the  most  discouraging  character.,    Of  numberless  enterprises 
undertaken  within   the   last  forty  years  by   associations   of 
laborers,  with  the  encouragement  and  often  the  active  assist- 


DIFFICULTIES  OF  CO-OPERATION.  347 

ance  of  philanthropists  and  political  economists,  and  enjoying 
the  benefit  of  a  vast  amount  of  gratuitous  advertisement,* 
scarcely  any  remain.  Mr.  Frederick  Harrison,  reviewing  the 
history  of  co-operative  enterprises  in  England,  indicates  the 
co-operative  cotton  mills  as  the  only  true  instances  of  the 
application  of  this  principle  on  any  important  scale.  "  Some 
of  the  mills,"  he  says,  "  never  got  to  work  at  all ;  some  took 
the  simple  form  of  joint-stock  companies  in  few  hands ; 
others  passed  into  the  hands  of  small  capitalists,  or  the  shares 
were  concentrated  among  the  promoters.  In  fact,  there  is 
now,  I  believe,  no  co-operative  cotton  mill,  owned  by  working 
men,  in  active  operation,  on  any  scale,  with  the  notable 
exception  of  Rochdale." 

"  Here  and  there,"  Mr.  Harrison  continues,  "  an  association 
of  bootmakers,  hatters,  painters  or  gilders,  is  carried  on,  upon 
a  small  scale,  with  varying  success.  But  small  bodies  of 
handicraftsmen  (or,  rather,  artists),  working  in  common,  with 
moderate  capital,  plant  and  premises,  obviously  establish 
nothing." 

435.  The  Difficulties  of  Productive  Co-operation. — 
With  such  a  statement,  from  a  distinguished  labor  champion, 
we  repeat  our  inquiry,  Why  is  it  that  co-operation,  in  the 
view  of  the  many  and  great  advantages  which  it  offers,  has 
had  such  partial  and  doubtful  success  ?  The  answer  is  at 
hand.  The  difficulties  of  productive  co-operation  are  directly 
as  its  advantages.  The  arbitrary  powers  wielded  and  the  vast 
profits  enjoyed  by  the  employing  class  make  the  working 
classes  desire,  naturally  enough,  to  bring  about  an  industrial 
order  in  which  they  shall  no  longer  be  subject  to  such  exercise 
of  authority,  and  in  which  they  shall  themselves  reap  the  large 
sums  of  wealth  which  they  see  passing  into  the  hands  of  their 
employers.  Yet  when  a  body  of  laborers  set  up  for  themselves, 


*  Within  the  last  three  or  four  years,  a  fresh  crop  of  co-operative 
enterprises  has  sprung  up,  especially  in  the  United  States.  Time 
has  not  yet  served  to  determine  the  question  of  success  or  failure.  The 
fullest  accounts  of  these  enterprises  will  be  found  in  the  publications  of  the 
American  Economic  Association. 


348  POLITICAL   ECONOMY. 

the  result  very  soon  shows  that  the  reason  why  the  employer 
wields  such  despotic  power  and  enjoys  such  large  revenues, 
is  that  he  performs  a  part  in  modern  industrial  society  which 
is  of  supreme  importance,  in  which  any  thing  less  than  the 
highest  abilities  of  organization  and  administration  involve 
comparative,  if  not  absolute,  failure. 

The  time  may  come,  when  a  body  of  laborers,  joined 
together  for  the  purpose  of  co-operative  production,  will  give 
as  intelligent  a  direction,  as  close  a  supervision,  as  rigid  a  dis- 
cipline, as  energetic  an  impulse,  as  the  present  successful  man 
of  business  gives  to  the  enterprises  on  which  his  fortunes  and 
his  reputation  are  staked  ;  but,  for  one,  though  believing  thor- 
oughly so  far  as  politics  are  concerned,  in  a  government  of  the 
people,  by  the  people,  for  the  people,  I  see  nothing  which  indi- 
cates that,  within  any  near  future,  industry  is  to  become  less  des- 
potic than  it  now  is.  The  power  of  the  master  in  production, 
"  the  captain  of  industry,"  has  steadily  increased  throughout 
the  present  century,  with  the  increasing  complexity  of  com- 
mercial relations,  with  the  greater  concentration  of  capital, 
with  improvements  in  apparatus  and  machinery,  with  the  multi- 
plication of  styles  and  fashions,  with  the  localization  and 
specialization  of  manufactures. 

436.  I  shall  be  heartily  glad  to  see  the  working  classes  rise 
to  the  height  of  the  occasion,  and  vindicate  their  right  to  rule 
in  industry  by  showing  their  power  to  do  it.  But  meanwhile 
it  must  be  distinctly  understood,  that  nothing  costs  the  work- 
ing classes  so  much  as  the  bad  or  commonplace  conduct  of 
business;  that  industry  must  be  energetically,  economically, 
and  wisely  managed,  no  matter  who  is  to  do  it ;  and  that  co-op- 
eration will  be  successful  only  as  it  results  in  the  production 
of  equally  good  articles,  at  equally  low  prices,  as  those  produced 
under  entrepreneur  management. 

If  we  have  made  our  analysis  of  profits  correctly,  it  appears 
(par.  312)  that  the  gains  of  the  employer  are  not  taken  from 
the  earnings  of  the  laboring  class,  but  measure  the  difference 
in  production  between  the  commonplace  or  bad,  and  the  able, 
and  shrewd,  and  strong  management  of  business.  When  asso- 
ciated laborers  are  able  to  manage  business  as  ably,  strongly 


PROFIT-SHARING.  349 

and  shrewdly  as  private  employers,  they  can  dismiss  the  entre- 
preneur, and  keep  his  gains  themselves. 

437.  A   Possible  Field   for  Industrial  Co-operation.— I 
have  spoken  thus  strongly  of  the  difficulties  of  productive 
co-operation,  because  I  believe  that  only  harm  will  come  to 
the  interests  of  the  working  classes  from  slurring  over  those 
difficulties,  as  is  so  often,  with  the  best  intentions,  done  by 
writers  on  economics.     In  speaking  thus,  however,  of  the  evil 
liabilities  which  beset  such  enterprises,   I  have  reference  to 
industry  as  a  whole,  and  especially  to  its  larger  branches, 
which  supply  general  markets,  and  which  are  subject  to  com- 
petition at  once  far-reaching  and  searching.     In  the  last  sen- 
tence quoted  from  Mr.  Frederick  Harrison,  we  find  indicated 
the  outlines  of  a  possible  field  of  co-operation,  within  which 
most  of  the  difficulties  which  attend  such  enterprises  on  a 
larger   scale,   are  not   encountered,    or    are    encountered   in 
greatly  diminished  force.     Where  (l)  a  branch  of  industry 
is  of  such  a  nature  that  it  can  best  be  carried  on  by  a  'small 
group  of  workmen  ;  where  (2)  the  workmen  so  engaged  are 
substantially  on  a  level  as  regards  strength  and  skill  ;  where 
(3)  the  initial  expenditure  for  tools  and  materials  is  small, 
and,   especially,  where    (4)   the   goods   are   to   be   produced 
mainly  or  wholly  for  the  local  market,  the  difficulties  of  the 
co-operative  system  sink  to  a  minimum  and  the  advantages 
rise  to  a  maximum.     It  is  in  such  branches  of  industry,  there- 
fore, that  the  experiment  of  productive  co-operation  should 
first  be  tried.     Success  can  be  achieved  here,  if   anywhere. 
Should  success  be  here  achieved,  advantage  may  be  taken  of 
the  experience  thus  accumulated  and  of   the  training  thus 
acquired,  to  undertake  progressively  larger  enterprises.     On 
the  other  hand,  should  the  difficulties  of  productive  co-opera- 
tion prevent  a  decided  success  within  the  nearer  and  easier 
field,  it  would  be  worse  than  futile  to  attempt  to  inaugurate 
that  system  on  a  more  ambitious  scale. 

438.  Proflt-Sharing — The  obstacles  which  beset  produc- 
tive co-operation  are  not  those  which  are  encountered  by  the 
scheme  of  Profit-Sharing,  which  has  been  highly  recommended 
by  many  writers  and  which  has  been  undertaken  of  late  years, 


350  POLITICAL  ECONOMY. 

not,  indeed,  on  a  large  scale,  but  in  numerous  instances.  The 
advantages  of  this  scheme,  illustrated  by  many  examples  of 
at  least  partial  and  temporary  success,  will  be  found  stated  in 
the  work  under  the  title,  Profit-Sharing,  by  Mr.  Sedley 
Taylor.  Fresh  literature  on  the  subject  is  now  almost  daily 
appearing  in  newspapers,  magazines,  pamphlets  and  official 
reports.  The  matter  is  one  of  economic  and  administrative 
detail,  too  minute  to  be  treated  in  an  elementary  work  of  this 
character. 

The  object  sought  is  to  interest  workmen  in  increasing 
production  and  in  reducing  waste  and  breakage,  through  a 
payment  to  them  of  a  portion  of  the  employer's  profits.  It 
is,  also,  held  that  this  system  would  have  the  effect  to  promote 
good  feeling  between  master  and  man,  and  to  diminish  the 
resort  to  strikes  and  labor  contests,  although,  in  fact,  it  has 
not  always  served,  when  tried,  to  prevent  the  workmen  con- 
cerned from  joining  others  of  the  same  trade  when  such 
contests  have  once  begun. 

The  difficulties  of  profit-sharing  are  found  (1)  in  the  small- 
ness  of  the  amount  which  can  thus  be  distributed  among  the 
workmen,  without  unduly  diminishing  the  employer's  interest 
in  production  ;  (2)  in  the  suspicions  likely  to  arise  regarding 
the  employer's  good  faith  in  declaring  the  amount  thus  subject 
to  distribution,  unless  the  workmen,  or  a  committee  of  them, 
are  to  be  allowed  such  access  to  the  employer's  books  and 
accounts  as  few  business  men  would  willingly  concede,  and  (3) 
in  the  perplexing  question,  what  shall  be  done,  under  such  a 
system,  in  the  not  infrequent  cases  where  the  employer 
realizes,  not  a  profit,  but  a  loss. 

The  last  of  these  difficulties  is,  perhaps,  the  greatest.  The 
employer  is,  not  unnaturally,  disposed  to  hold  that,  if  the 
workmen  share  in  his  gains,  they  should  also  share  in  his 
losses  ;  or,  at  least,  that  his  gains  and  losses,  through  a  con- 
siderable period  of  time,  should  be  set  off  against  each  other, 
and  that  only  the  balance  of  gain  for  such  a  period  should  be 
subject  to  the  rule  of  distribution.  Such  a  postponement  of 
the  dividend,  however,  taken  in  connection  with  the  smallness 
of  the  amount  which,  at  the  most,  could  thus  be  divided, 


INCONVERTIBLE  PAPER  MONEY.  351 

would  reduce  the  interest  of  the  workmen  in  the  system,  to 
such  an  extent  as  to  practically  deprive  the  arrangement  of 
nearly  all  influence  over  their  actions,  if  it  did  not  lead  to  its 
early  abandonment. 

III. 

POLITICAL    MONEY. 

439.  Inconvertible  Paper  Money  is,  by  Distinction, 
Political  Money — In  all  modern  societies,  money  is  at  once  an 
economic  agent  and  a  political  institution.  The  selection  by  the 
State  of  a  money  metal,  the  adoption  of  denominations  and 
devices  for  its  coinage,  the  establishment  of  a  standard  of  purity 
in  the  coin,  and  the  conferring  of  the  legal-tender  property 
upon  the  money  pieces  so  formed,  are  acts  of  legislation  or 
administration  which  give  to  all  forms  of  money  with  which 
we  are  familiar  something  of  a  political  character. 

But  there  is  one  kind  of  money  which  owes  its  existence 
and  acceptance  as  the  common  medium  of  exchange  so  com- 
pletely to  legislation  or  to  the  act  of  the  ruler,  that  it  may  be 
called,  by  eminence,  political  money.  This  is  the  inconvert- 
ible paper  money  of  which  we  wrote  in  Chapter  5,  Part  III. 
In  comparison  herewith,  the  other  forms  of  money  known  to 
modern  commerce  may  be  regarded  as  having  so  little  of  a 
political  character  as  to  justify  their  being  called  economic 
money. 

The  essential  difference  between  what  we  here  call  econo- 
mic and  what  we  call  political  money,  is  that  the  supply  of 
the  former,  under  free  coinage,  is  limited  by  natural  conditions 
of  production,  while  the  supply  of  the  latter  is  released  from 
all  such  conditions,  and  is  made  to  depend  upon  law  or  the  will 
of  the  ruler.  It  requires  more  labor,  in  general  twice  as  much 
labor,  to  raise  two  thousand  ounces  of  gold  or  silver  from  the 
mine  as  to  raise  one  thousand  ounces,  to  be  coined  into  money; 
but  it  costs  no  more  labor  to  print  two  million  dollars  of 
paper  money,  or  ten  millions,  or  fifty,  than  to  print  one  mil- 
lion. To  multiply  the  amount  of  such  money,  it  is  only  nec- 
essary to  print  the  word  fifty,  or  ten,  or  two,  instead  of  the 
word  one. 


352,  POLITICAL  ECONOMY. 

By  some,  this  capability  of  increase  at  will,  independently  of 
the  expenditure  of  labor  or  capital,  has  been  regarded  as  a 
prime  advantage,  and  such  money  has  been  denominated  by 
these  advocates  of  government  issues,  political  money, — that 
character  being  attributed  to  it  as  meritorious.  It  is,  then, 
from  the  friends  of  such  money  that  I  borrow  the  term. 
Accepting  the  challenge  contained  in  this  title,  let  us  proceed 
to  inquire  further  regarding  government  paper  money,  apply- 
ing to  it  the  test  to  which  all  political  institutions  and  arrange- 
ments are  rightly  subjected. 

440.  The  Favorable  Possibilities  of  Political  Money. — 
I  have  already,  with  a  frankness  that  has,  on  other  occasions, 
been  severely  blamed,  admitted  that  government  paper  money 
may,  for  a  time  at  least,  irrespective  of  redemption,  pass  in 
circulation   without   depreciation  ;   performing  perfectly  the 
function  of  a  medium  of  exchange,  registering  the  comparative 
values  of  the  several  commodities  in  the  market  with  all  the 
facility  and  accuracy  that  could  be  desired,  and  serving  as  a 
standard  of  deferred  payments  well  or  ill  according  as  its  own 
amount  is  regulated.     Prof.  Jevons  states  that  between  1789 
and  1809  the  value  of  gold  fell  46  per  cent.;  that  from  1809  to 
1849  it  rose  145  per  cent.;  while  between  1849  and  1874  it  fell 
at  least  20  per  cent.     It  is   certainly   conceivable   that  paper 
money  might  be  so  regulated  in  amount  as  to  fluctuate  less  in 
value  than  did  gold  during  the  eighty -five  years  covered  by 
Prof.  Jevons'  computation. 

441.  The  Liability  to  Evil  Inhering  in  Political  Money. 
— In  the  case  of  every  proposed  political  institution  or  arrange- 
ment, however,  we  are  bound  to  investigate,  not  its  possibili- 
ties only,  but  also  its  probabilities.     It  is  not  enough  to  show 
that  it  might  conceivably  be  so  established  and  maintained  as 
to  yield  results  of  good.     It  must  also  appear  that  its  success- 
ful working  does  not  depend  upon  an  exercise  of  prudence, 
virtue  and  self  control,  beyond  what  is  reasonably  and  fairly 
to  be  expected  of  men  in  masses,  and  of  rulers  and  legislators  as 
we  find  them  ;  and  the  consequences  of  its  possible  perversion  or 
abuse  must  be  weighed  against  the  advantages  which  might 
be  derived  from  its  legitimate  application  and  employment.. 


POLITICAL  MONEY.  353 

Paper  money,  then,  as  a  political  institution  or  arrangement, 
must  submit  to  this  test.  The  man  who  advocates  govern- 
ment issues,  without  being  prepared  to  show  reasonable 
ground  for  believing  that  they  will  not  be  so  abused  as  to 
accomplish  more  of  evil  than  of  benefit,  is  not  entitled  to  be 
listened  to.  After  the  experiences  of  the  past  hundred  years 
intelligent  men  rightly  refuse  to  take  the  trouble  even  to  dis- 
cuss political  schemes  which  assume  an  impossible  virtue,  or 
which  disregard  the  actual  conditions  under  which  alone  they 
could  be  set  to  work. 

In  the  case  of  government  paper  money  the  liability  to  abuse 
is  found  in  the  tendency  to  over-issue  ;  to  this  end  the  fiscal 
exigencies  of  government  (par.  444)  are  likely  to  combine 
with  a  popular  craving  (par.  445)  for  a  money  of  diminishing 
value. 

We  have  already  (par.  220)  shown  that  the  smallest  degree 
of  depreciation,  even,  as  Mr.  Bagehot  says,  the  mere  liability 
to  depreciation  without  its  reality,  may  unsettle  the  exchanges 
between  the  paper  money  country  and  those  with  which  it 
trades,  in  a  degree  to  work  very  injurious  effects.  But  what 
we  have  here  to  consider  is  the  liability  to  extensive  over- 
issues, with  an  altogether  new  series  of  consequences  to  trade 
and  industry. 

442.  Two  Motives  Operating  to  Produce  Expansion. — 
This  liability  arises  from  the  fact  that,  where  the  principle  of 
inconvertible  paper  has  once  been  adopted,  two  powerful 
motives  tend  to  produce  expansion,  with  no  adequate  restrain- 
ing force  in  operation.  When  once  the  traditional  fear  of 
paper  money  is  worn  off,  the  only  safeguard  against  over-issue 
is  found  in  far-reaching,  conscientious,  disinterested  and  cour- 
ageous statesmanship.  All  the  selfish  interests  that  make 
themselves  felt,  all  the  passions  of  the  hour  and  the  appetites 
that  clamor  for  indulgence,  favor  expansion.  There  is  an 
unremitting  pressure  on  that  side,  which  now  and  then  rises  to 
furious  impulses  against  the  frail  barrier  that  withstands 
inflation. 

How  far  is  it  wise  for  any  moderate  advantage  to  call  into 
being  forces  which  are  only  to  be  kept  from  becoming  in  the 


354  POLITICAL  ECONOMY. 

highest  degree  destructive  by  being  constantly  watched  and 
unremittingly  opposed  ?  Is  it  good  policy — is  it  consistent 
with  ordinary  common  sense — to  invoke,  for  the  accomplish- 
ment of  a  definite  and  at  the  best  not  considerable  good, 
agencies  respecting  which  it  is  confessed  that  the  least  relaxa- 
tion of  vigilance,  a  momentary  indulgence  of  human  weakness, 
one  false  motion,  will  lead  to  serious,  perhaps  irreparable 
disaster  ? 

443.  Time  no  Safeguard — Nor  does  the  liability  to  over- 
issue diminish  with  the  lapse  of  time.  Moderation  in  the 
issue  of  government  paper  money  does  not  form  a  political 
habit  which  becomes  a  security  against  abuse.  On  the  con- 
trary, the  longer  the  r'egime  of  inconvertible  paper  money 
lasts,  the  greater  the  danger.  The  popular  mind  becomes 
accustomed  to  the  sight  and  the  thought  of  it  ;  the  fear  of  it 
is  worn  off  ;  a  generation  comes  upon  the  stage  that  has  not 
known  metallic  money,  or  bank  money  convertible  into  coin 
on  demand. 

In  1690,  the  Colony  of  Massachusetts  issued  paper  money 
to  pay  the  charges  of  the  disastrous  expedition  of  Sir  Wm. 
Phipps.  At  first,  over-issue  took  place  and  depreciation  set 
in  ;  but  by  prompt  action  the  excess  was  called  in  and 
redeemed,  and  the  notes  brought  to  par.  They  so  remained 
for  nearly  twenty  years.  When,  however,  in  1710,  the 
second  expedition  against  Canada  took  place,  the  colony  fell, 
without  an  apparent  struggle,  into  the  gulf  of  irredeemable 
paper  ;  the  money  of  Massachusetts  became  a  weltering 
chaos  ;  trade  was  brought  into  the  utmost  confusion  ;  pro- 
duction to  the  utmost  weakness.  From  this  miserable  condi- 
tion the  colony  did  not  emerge  for  nearly  forty  years,  till, 
in  1749,  the  paper  was  bought  up  at  11  :  1  in 'silver  and  burned. 

Russia  first  issued  paper  money  in  1768,  and  for  nearly 
twenty  years  kept  her  notes  at  par,  only  to  fall  at  the  end  of 
that  period  into  an  abyss  of  discredit  and  depreciation  from 
which  her  trade  and  finances  have  not  yet  recovered. 

Twice  since  the  Revolution  of  1848  Austria  has  stood  on  the 
very  verge  of  specie  payments,  only  to  be  thrown  backward 
into  insolvency  by  the  imminence  of  war. 


POLITICAL  MONEY.  355 

The  danger  of  over-issue  never  ceases  to  threaten  inconvert- 
ible paper  money.  The  path  winds  along  the  edge  of  a  preci- 
pice. Vigilance  can  not  for  a  moment  be  relaxed.  The  pru- 
dence and  self-restraint  of  years  count  for  nothing  against  any 
new  onset  of  popular  passion  or  in  the  face  of  a  sudden  exi- 
gency of  government. 

444.  The  Fiscal  Motive.— The  exigencies  of  the  public 
treasury  constitute,  perhaps,  the  most  formidable  of  the  two 
dangers  which  menace  the  integrity  of  a  paper  money  circula- 
tion. 

"  Real  money,"  said  Edmund  Burke,  "  can  hardly  ever  mul- 
tiply too  much  in  any  country,  because  it  will  always,  as  it 
increases,  be  a  certain  sign  of  the  increase  of  trade,  of  which 
it  is  the  measure,  and  consequently  of  the  soundness  and  vigor 
of  the  whole  body.  But  this  paper  money  niay  and  does 
increase,  without  any  increase  of  trade,  nay,  often  when  trade 
greatly  declines,  for  it  is  not  the  measure  of  the  trade  of  the 
nation,  but  of  the  necessity  of  the  government.  It  is  absurd 
and  must  be  ruinous,  that  the  same  cause  which  naturally 
exhausts  the  wealth  of  a  nation  should  likewise  be  the  only 
productive  cause  of  money."* 

The  two  most  marked  instances  of  continence  in  the  issue 
of  irredeemable  paper  are  those  afforded  by  the  Bank  of 
England  during  the  period  of  the  Restriction,  and  by  the  Bank 
of  France  in  1848,  and  again  in  1871.  No  one  can  question 
that  the  prudence  and  self-restraint  here  shown  were  due 
mainly  to  the  fact  that,  in  neither  case,  would  the  profit  of 
fresh  issues  have  inured  to  the  benefit  of  the  government. 
At  the  same  time,  it  would  not  be  candid  to  omit  to  mention 
the  loyal  observance  by  the  Congress  of  the  United  States  of 
the  pledge  it  gave  the  country  in  1864,  that  the  greenbacks 
should  not  exceed  $400,000,000. 

*  In  the  same  vein,  Alexander  Hamilton:  "In  great  and  trying 
emergencies  there  is  almost  a  moral  certainty  of  its  becoming  mischiev- 
ous. The  stamping  of  paper  is  an  operation  so  much  easier  than  the 
levying  of  taxes,  that  a  government  in  the  practice  of  paper  emissions 
would  rarely  fail  to  indulge  itself  too  far  in  the  employment  of  this 
resource." 


356  POLITICAL  ECONOMY. 

445.  Scaling  Down  Debts.— In  all  free  governments,  or 
governments  much  subject  to  popular  impulses,  a  second 
danger  of  over-issue  arises  from  the  appetite  which  is 
engendered  in  the  masses  of  the  people  for  further  emissions 
for  the  purpose  of  scaling  down  debts,  "  making  trade  good," 
and  enabling  works  of  construction  and  extensive  public 
improvements  to  be  undertaken,  for  which  taxation  could  not 
easily  provide  the  means. 

The  intrusion  of  the  debtor  class  into  the  legislature  with 
their  impudent  demands  for  issues  to  scale  down  debts  is  a 
familiar  spectacle.  Even  the  sterling  virtue  of  early  New 
England  did  not  save  those  primitive  communities  from  the 
fiercest  impulses  of  political  dishonesty,  when  once  the  paper 
money  passion  had  been  aroused.  "Parties,"  says  the  his- 
torian Douglass,  "  were  no  longer  Whigs  and  Tories,  but 
creditors  and  debtors.  Governors  were  elected  and  turned 
out  as  the  different  interests  happened  to  prevail." 

The  same  feature  appeared  early  in  the  history  of  the 
French  Revolutionary  paper  money.  We  have  seen  it  in  our 
own  country  during  the  present  generation,  an  active,  aggres- 
sive, vehement,  virulent  force,  engendered  by  the  desire  of 
paying  debts,  wiping  off  scores,  raising  mortgages,  in  depreci- 
ated money. 

Paying  debts  is  always  a  disagreeable  necessity.  For  one 
man  who  would  steal  to  acquire  property,  in  the  first  instance, 
a  score  will  do  that  which  is  no  better  than  stealing,  in  order 
to  retain  property  which  has  passed  into  their  hands  and 
which  they  have  come  to  look  upon  as  theirs,  though  not  paid 
for. 

It  is  the  view  of  not  a  few  sound  economists  *    that  a  grad- 

*  Thus  M.  Chevalier  says  :  "  Such  a  change  will  benefit  those  who 
live  by  current  labor  :  it  will  injure  those  who  live  upon  the  fruits  of 
past  labor,  whether  their  fathers'  or  their  own.  In  this  it  will  work  in 
the  same  direction  with  most  of  the  developments  which  are  brought 
about  by  that  great  law  of  civilization  to  which  we  give  the  noble  name 
of  progress." 

And  Mr.  J.  R.  McCulloch  declares  that  "  though,  like  a  fall  of  rain  after 
a  long  course  of  dry  weather,  it  may  be  prejudicial  to  certain  classes,  it 


PAUPEK1SM.  357 

ually  progressive  depreciation  of  metallic  money,  from  age  to 
age,  might  be  advantageous  to  society  as  a  whole,  both 
relieving  industry  in  some  measure  from  the  weight  of  bur- 
dens derived  from  the  past,  and  giving  a  certain  fillip  to  indus- 
trial enterprise. 

But  here  the  injury  to  the  creditor  class  is  not  the  work  of 
man,  but  of  God  ;  like  the  death  of  a  miserly  bad  man  which 
brings  his  wealth  into  the  hands  of  a  generous,  philanthropic, 
public-spirited  heir,  at  which  change  of  ownership  men  may 
properly  rejoice.  But  had  the  heir  procured  the  death  of  the 
miser,  the  aspect  of  the  case  would  have  been  entirely  differ- 
ent. No  plea  of  public  spirit  or  benevolence  in  the  disposition 
of  the  wealth  could  compensate  society  for  that  deep  and 
damning  wrong. 

A  reduction  in  the  burden  of  obligations,  accomplished  by 
the  act  of  a  legislature,  in  the  issue  of  paper  for  the  purpose 
of  enabling  the  debtor  to  pay  in  a  depreciated  money,  has  no 
virtue  in  it  to  promote  industry  or  encourage  enterprise.  It 
carries  with  it  the  sting  of  injustice  and  fraud.  It  draws 
after  it  retributive  agencies  which  curse  the  people  and 
the  age.  Having  reference  exclusively  to  economic  interests, 
we  may  confidently  say  that  the  man  who  advocates  the 
scaling  down  of  debts,  for  the  sake  o*  encouraging  trade  and 
production,  shows  himself  so  ignorant  of  history  as  to  be  a 
wholly  unfit  adviser  as  to  the  present  and  the  future. 

IV. 

PAUPERISM. 

446.  The  Impotent  vs.  the  Able-Bodied  Poor.— The 
relief  of  the  impotent  poor,  whether  by  private  or  by  public 
charity,  is,  so  far  as  political  economy  is  concerned  with  it,  a 
question  relating  to  the  consumption  of  wealth.  It  is  so 
much  a  matter  of  course,  under  our  modern  civilization,  that 
the  very  young  and  the  very  old,  the  crippled  and  deformed, 

is  beneficial  to  an  incomparably  greater  number,  including  all  who  are 
actively  engaged  in  industrial  pursuits,  and  is,  speaking  generally,  of 
great  public  or  national  advantage." 


35 »  POLITICAL  ECONOMY. 

who  are  unable  to  earn  their  own  maintenance,  shall  not  be 
-allowed  to  starve,  that  the  matter  of  relief  to  these  classes 
becomes  one  of  administrative  detail,  that  does  not  require 
even  to  be  alluded  to  in  an  elementary  treatise  on  economics. 
The  experience  of  that  country  from  which  we  derive  our  law 
-and  much  of  our  administrative  machinery,  is,  however,  so 
instructive  as  to  the  influence  for  mischief  upon  the  entire 
laboring  population  and  upon  the  future  production  of  wealth, 
that  may  be  wrought  by  ill  considered  provisions  for  the  dis- 
tribution of  alms  to  the  able-bodied  poor,  as  to  make  it  worth 
while  briefly  to  recite  that  experience  here  ;  and  thereupon  to 
define  the  limits  outside  which  the  consumption  of  wealth  for 
this  purpose  becomes  prejudicial. 

We  shall  get  at  our  subject  most  directly  by  inquiring,  why 
is  it  that  the  laborer  works  at  all.  Clearly  that  he  may  eat. 
If  he  may  eat  without  it,  he  will  not  work.  The  neglect 
•or  contempt  of  this  very  obvious  truth  by  the  British  Parlia- 
ment, during  the  latter  part  of  the  eighteenth  and  the  early 
part  of  the  nineteenth  century,  brought  the  working  classes 
•of  the  kingdom  almost  to  the  verge  of  ruin,  created  a  vast 
body  of  hopeless  and  hereditary  pauperism,  and  engendered 
vices  in  the  industrial  system  which  have  been  productive  of 
evil  down  to  the  present  day. 

447.  Establishment  of  the  English  Pauper  System. — 
By  statute  of  the  27th  year  of  Henry  VIII.,  the  giving  of 
alms  was  prohibited,  and  collections  for  the  impotent  poor 
were  required  to  be  made  in  each  parish.  By  1st  Edward  VI., 
bishops  were  authorized  to  proceed  at  law  against  persons 
who  should  refuse  to  contribute  for  this  purpose,  or  should 
dissuade  others  from  contributing.  By  5th  Elizabeth, 
Justices  of  the  Peace  were  made  judges  of  what  constituted  a 
reasonable  contribution.  By  14th  Elizabeth,  regular  com- 
pulsory contributions  were  exacted.  But  the  act  of  43d 
Elizabeth  created  the  permanent  pauper  system  of  England. 

The  increasing  necessity  for  legal  provisions  for  the  poor, 
-during  the  period  covered  by  this  recital,  is  attributed  by 
judicious  writers,  first,  to  the  destruction  of  the  abbeys  and 
monasteries,  which  had,  in  earlier  times,  disbursed  vast  rev* 


THE    WORKHOUSE    TEST.  359. 

enues  in  charity ;  and,  secondly,  to  the  effects  of  the  flood  of 
new  silver  from  the  mines  of  Spanish  America,  which,  by 
rapidly  raising  prices  and  thus  reducing  the  purchasing 
power  of  fixed  incomes,  had  caused  large  numbers  to  be 
thrown  out  of  employment. 

By  the  act  of  43d  Elizabeth,  every  person  in  the  kingdom 
was  given  a  legal  right  to  public  relief,  if  required;  but  volun- 
tary pauperism  was  severely  dealt  with,  and  the  able-bodied 
were  compelled  to  work.  At  first,  the  body  of  inhabitants 
were  to  be  taxed  for  the  objects  of  this  statute  ;  but  subse- 
quent legislation  threw  the  burden  entirely  upon  the  landowners, 
where  it  remains  to  this  day,  with  the  exception  that  partial 
grants  are  now  made  out  of  the  Imperial  revenues  to  meet 
the  charges  of  maintaining  certain  classes  of  paupers,  such  as 
the  insane. 

448.  Removal  of  the  Workhouse  Test. — The  principle  of 
requiring  the  able-bodied  poor  to  work  continued  for  genera- 
tions to  be  fundamental  in  the  English  pauper  system  ;  and 
for  the  better  enforcement  of  this  requisition  parishes  or  unions 
of  parishes  were,  by  an  act  of  9th  George  I.,  authorized  to  build 
workhouses,  residence  in  which  might  be  made  a  condition  of 
relief.  Moreover,  from  the  days  of  Elizabeth  to  that  of  George 
III.,  the  spirit  which  actuated  the  administration  of  the  poor 
laws  was  jealous  and  severe.  Doubtless  in  that  administration 
unnecessary  harshness  was  sometimes  practiced  ;  but,  on  the 
whole,  the  effect  on  the  working  classes  was  wholesome,  for  it 
was  made  undesirable  to  become  a  pauper. 

On  the  accession  of  George  III.,  a  different  theory  came  to 
direct  legislation  relating  to  poor  relief,  and  a  widely  differ- 
ent temper  of  administration  began  to  prevail.  Six  successive 
acts,  passed  in  the  first  years  of  that  reign,  intimated  the 
changed  spirit  in  which  pauperism  was  thereafter  to  be  dealt 
with.  In  the  22nd  year  of  George  III.,  the  act  known  as  Gil- 
bert's act  gave  a  fuller  expression  to  this  spirit.  By  that  act 
the  workhouse  was  no  longer  to  be  used  as  a  test  of  voluntary 
pauperism  :  the  29th  section  provided  that  "no  person  shall  be 
sent  to  such  poor-hon.se  except  such  as  are  become  indigent  by 
old  age,  sickness  or  infirmities,  and  are  unable  to  acquire  a 


360  POLITICAL  ECONOMY. 

maintenance  by  their  labor  ;  except  such  orphan  children  as 
shall  be  sent  thither  by  order  of  the  guardian  or  guardians 
of  the  poor,  with  the  approbation  of  the  visitor,  and  except 
such  children  as  shall  necessarily  go  with  their  mothers  thither 
for  sustenance." 

With  respect  to  the  rest  of  the  poor,  the  act  by  its  32d  sec- 
tion provided  "  That  where  there  shall  be  in  any  parish,  town- 
ship or  place,  any  poor  person  or  persons,  who  shall  be  able 
and  willing  to  work  but  who  can  not  get  employment,  the 
guardian  of  the  poor  of  such  parish,  etc.,  on  application  made 
to  him  by  or  on  behalf  of  such  poor  person,  is  required  to 
agree  for  the  labor  of  such  poor  person  or  persons  at  any  work 
or  employment  suited  to  his  or  her  strength  and  capacity,  in 
any  parish  or  place  near  the  place  of  his  or  her  residence,  and 
to  maintain,  or  cause  such  person  or  persons  to  be  properly 
maintained,  lodged  and  provided  for,  until  such  employment 
shall  be  procured,  and  during  the  time  of  such  work,  and  to 
receive  the  money  to  be  earned  by  such  work  or  labor,  and  apply 
it  in  such  maintenance  as  far  as  the  same  will  go,  and  make 
up  the  deficiency,  if  any" 

By  the  repeal  of  the  workhouse  test,  and  by  the  additional 
most  injudicious  provision  which  we  have  placed  in  italics, 
a  deadly  blow  was  struck  at  the  manhood  and  industrial  self- 
sufficiency  of  the  working  classes  of  England. 

449.  "  The  act,"  says  Sir  George  Nicholls,  in  his  History  of 
the  English  Poor  Law,  "  appears  to  assume  that  there  can 
never  be  a  lack  of  profitable  employment,  and  it  makes  the 
guardian  of  the  parish  answerable  for  finding  it  near  the  labor- 
er's own  residence,  where,  if  it  existed  at  all,  the  laborer  might 
surely,  by  due  diligence,  find  it  himself.  But  why,  it  may  be 
asked,  should  he  use  such  diligence  when  the  guardian  is  bound 
to  find  it  for  him,  and  take  the  whole  responsibility  of  bargain- 
ing for  wages  and  making  up  to  him  all  deficiency?  He  is 
certain  of  employment.  He  is  certain  of  receiving,  either 
from  the  parish  or  his  employer,  sufficient  for  the  maintenance 
of  himself  and  his  family  ;  and  if  he  earns  a  surplus,  he  is  cer- 
tain of  its  being  paid  over  to  him.  There  may  be  uncertainty 
with  others,  and  in  other  occupations.  The  farmer,  the  lawyer, 


PAUPERISM.  361 

the  merchant,the  manufacturer,  however  industrious  and  obser- 
vant, may  labor  under  uncertainties  in  their  several  callings ; 
not  so  the  laborer.  He  bears,  as  it  were,  a  charmed  life  in  this 
respect,  and  is  made  secure,  and  that,  too,  without  the  exercise 
•of  care  or  forethought.  Could  a  more  certain  way  be  devised 
for  lowering  character,  destroying  self-reliance,  and  discour- 
aging, if  not  absolutely  preventing,  improvement  ?  " 

450.  The  Logical  Outcome — By  1832  the  false  and  vicious 
principle  on  which  Gilbert's  act  was  based  had  been  carried 
logically  out  to  its  limits  in  almost  universal  pauperism.  The 
condition  of  the  person  who  threw  himself  flat  upon  public 
charity  was  better  than  that  of  the  laborer  who  struggled  on 
to  preserve  his  manhood  in  self-support.  The  commissioners 
appointed  in  that  year  to  investigate  the  workings  of  the  poor 
law,  found  that,  where  the  independent  laborer  was  able  to 
«arn  by  his  week's  work  but  122  ounces  of  solid  food,  the  pau- 
per had  151  ounces  given  him  in  idleness.  The  former  had 
only  to  abandon  his  effort  to  provide  for  himself,  to  be  better 
provided  for  than  was  possible  through  his  own  exertions. 
The  drone  was  better  clothed,  better  lodged  and  better  fed 
than  the  worker. 

All  the  incidents  of  this  bad  system  were  unnecessarily  bad. 
The  allowance  for  each  additional  child  was  so  much  out  of 
proportion  to  the  allowance  for  adults,  that  the  more  numer- 
ous a  man's  children  the  better  his  condition,  and  thus  the 
rapid  increase  of  an  already  pauperized  population  was  encour- 
aged. Moreover,  the  allowance  in  the  case  of  illegitimate  chil- 
dren was  even  greater  than  for  those  born  in  wedlock.  The 
British  Parliament  had  turned  itself  into  a  society  for  the  pro- 
motion of  vice.  "  The  English  law,"  said  Commissioner  Cow- 
ell,  in  his  report,  "  has  abolished  female  chastity."  "  In  many 
rural  districts,"  writes  Miss  Martineau  in  her  History  of  the 
Peace,  "  it  was  scarcely  possible  to  meet  a  young  woman  who 
was  respectable,  so  tempting  was  the  parish  allowance  for 
infants  in  a  time  of  great  pressure."  "  It  may  safely  be 
affirmed,"  said  the  Poor  Law  Commissioners  of  1831,  "that 
the  virtue  of  female  chastity  does  not  exist  among  the  lower 
orders  of  England,  except  to  a  certain  degree  among  domestic 


362  POLITICAL    ECONOMY. 

servants,  who  know  that  they  hold  their  situations  by  that 
tenure  and  are  more  prudent  in  consequence." 

SUCH  MAY  BE  THE  EFFECTS  OF  FOOLISH  LAWS.  THE  LEGISLA- 
TOR MAY  THINK  IT  HARD  THAT  HIS  POWER  FOR  GOOD  IS  SO 
CLOSELY  RESTRICTED  ;  BUT  HE  HAS  NO  REASON  TO  COMPLAIN 
OF  ANY  LIMITS  UPON  HIS  POWER  FOR  EVIL.  ON  THE  CON- 
TRARY, IT  WOULD  SEEM  THAT  THERE  IS  NO  RACE  OF  MEN,  WHOM 
A  FEW  LAWS  RESPECTING  INDUSTRY,  TRADE  AND  FINANCE, 
PASSED  BY  COUNTRY  SQUIRES  OR  LABOR  DEMAGOGUES,  IN 
DEFIANCE  OF  ECONOMIC  PRINCIPLES,  COULD  NOT  IN  HALF  A 
GENERATION  TRANSFORM  INTO  BEASTS. 

451.  Poor  Law  Reform. — We  have  seen  what  a  system  the 
English  squirearchy  substituted  for  the  economic  law  that  he 
that  would  eat  must  work.  The  natural  effects  of  this  system 
were  wrought  speedily  and  effectually.  The  disposition  to 
labor  was  cut  up  by  the  roots  ;  all  restraints  upon  increase  of 
population  disappeared  under  a  premium  upon  births  ;  self- 
respect  and  social  decency  vanished  before  a  money-premium 
on  bastardy.  The  amount  expended  in  the  relief  and  main- 
tenance of  the  poor  rose  to  enormous  and  even  ruinous  sums. 
In  some  instances  landowners  relinquished  their  estates  in 
order  to  escape  the  monstrous  rates  levied  upon  them,  in  sup- 
port of  local  paupers. 

In  this  exigency,  which,  in  truth,  constituted  one  of  the 
gravest  crises  of  English  history,  Parliament,  by  the  Poor 
Law  Amendment  Act  (4th  and  5th,  William  IV.)  returned 
to  the  principle  of  the  act  of  Elizabeth.  The  workhouse  test 
was  restored  ;  allowances  in  aid  of  wages  were  abolished  ;  paid 
overseers  were  appointed,  and  a  central  system  was  created 
for  the  due  supervision  of  the  system.  Illegitimacy  was  dis- 
couraged by  punishing  the  father,  instead  of  rewarding  the 
mother  ;  and  the  law  of  pauper  settlement*  was  modified  so  as 
to  facilitate  the  migration  of  laborers  in  search  of  employ- 
ment. 

*The  law  of  parochial  settlement  was  enacted  in  the  reign  of  Charles 
II.  While  other  restrictions  upon  the  movements  of  population  grad- 
ually gave  way,  during  the  two  centuries  following,  before  the  expan. 
sion  of  industrial  enterprise  and  the  liberalizing  tendencies  of  modern 


PA  UPER1SM.  363 

By  this  great  legislative  reform  the  burden  of  pauperism, 
in  spite  of  the  continuing  effects  of  the  old  evil  system,  was 
reduced  in  three  years,  by  an  average  amount,  the  kingdom 
over,  of  forty-five  per  cent. 

452.  The  Principle  that  Should  Govern  Poor  Relief.— 
The  moral  of  this  episode  in  the  industrial  history  of  England 
is  easily  drawn.  It  is  of  the  highest  consequence  that 
pauperism  shall  not  be  made  inviting  ;  that,  on  the  contrary, 
the  laborer  shall  be  stimulated  to  the  utmost  possible  exertions 
to  achieve  self-support,  only  accepting  relief  as  an  alternative 
to  actual  starvation.  It  is  not,  to  this  end,  necessary  that  any 
brutality  of  administration  shall  deter  the  worthy  poor  who 
have  no  other  recourse  ;  but,  it  should  be  the  prime  object  of 
legislation  to  make  the  situation  of  the  pauper  less  agreeable 
than  that  of  the  independent  laborer,  and  that,  by  no  small 
interval.  The  workhouse  test  for  all  the  able-bodied  poor, 
and  genuine  hard  work,  up  to  the  limit  of  strength,  are 
imperatively  demanded  by  the  interests  of  productive  labor. 
Wherever  there  is  a  possible  choice  between  self-support  and 
public  support,  the  inclination  to  labor  for  one's  own  subsis- 
tence should  be  quickened  by  something  of  a  penalty  upon 
the  pauper  condition,  though  not  in  the  way  of  cruelty  or 
positive  privation.  "All,"  says  Mr.  Geo.  W.  Hastings,  "who 
have  administered  the  Poor  Law  must  know  the  fatal  readi- 
ness with  which  those  hovering  on  the  brink  of  pauperism 
believe  that  they  can  not  earn  a  living,  and  the  marvelous 
way  in  which,  if  the  test  be  firmly  applied,  the  means  of  sub- 
sistence will  be  found  somehow." 


thought,  the  mischievous  tendencies  of  the  Law  of  Settlement  were  given 
a  wider  scope  and  an  increased  severity,  from  reign  to  reign.  Migration 
within  the  Kingdom  was  practically  prohibited.  If  the  laborer,  in  search 
of  employment  crossed  the  boundaries  of  that  one  of  the  fifteen  thou- 
sand parishes  of  England  in  which  he  belonged,  he  was  liable  to  be  appre- 
hended and  returned  to  the  place  of  his  settlement.  Parish  officers  were 
perpetually  incited  by  the  fears  of  the  rate-payers  to  the  utmost  zeal  in 
hunting  down  and  running  out  all  possible  claimants  for  public  charity, 
on  whom,  if  unmolested,  residence  would  confer  a  right  to  support. 
"  Where,"  says  Prof.  Rogers,  "  an  employer  wished  to  engage  a  servant 


364  POLITICAL  ECONOMY. 

V. 

THE   DOCTRINE    OF   THE   WAGE-FUND. 

453.  The  Doctrine  Stated.— In  opening  the  subject  of 
Wages,  I  passed  by  without  discussion  the  once  generally 
received  doctrine — generally  received,  that  is,  in  England  and 
America — of  a  f uud  set  apart  for  the  payment  of  wages,  and 
proceeded  at  once  to  state  affirmatively  the  views  I  hold 
regarding  the  laborer's  share  in  the  product  of  industry. 

Inasmuch,  however,  as  the  student  will  find  this  doctrine 
explicitly  taught  in  the  great  majority  of  all  the  systematic 
treatises  on  the  shelves  of  our  libraries,  it  seems  important 
that  it  should  be  dealt  with  critically. 

The  doctrine  of  a  Wage-Fund  is,  in  substance,  as  follows  : 
There  is,  in  any  country,  at  any  time,  an  amount  of  wealth 
set  apart  by  economic  forces  for  the  payment  of  wages.  The 
ratio  between  the  aggregate  capital  and  the  portion  thus 
devoted  to  the  payment  of  wages,  is  not  necessarily  the  same 
in  different  countries  at  the  same  time,  or  in  the  same  country 
at  different  times.  That  ratio  may  vary  with  the  conditions 
of  industry  and  the  habits  of  the  people  ;  but  at  any  given 
time,  the  amount  of  the  wage-fund,  under  the  conditions  exist- 
ing, is  determined  in  the  amount  of  capital.*  Were  the 
amount  of  that  capital  greater,  the  wage-fund  would  be 
greater,  and  greater  in  precisely  the  same  proportion.  Were 
the  amount  of  that  capital  smaller,  the  wage-fund  would  be 
smaller,  and  smaller  in  precisely  the  same  proportion. 

from  a  foreign  parish,  he  was  not  permitted  to  do  so  unless  he  entered 
into  a  recognizance,  often  to  a  considerable  amount,  to  the  effect  that  the 
new-comer  should  not  obtain  a  settlement,  else  the  bond  to  be  good  against 
the  employer.  Parochial  registers  are  full  of  such  acknowledgments." 

*  "  There  is  supposed  to  be,  at  any  given  instant,  a  sum  of  wealth 
which  is  unconditionally  devoted  to  the  payment  of  wages  of  labor 
This  sum  is  not  regarded  as  unalterable,  for  it  is  augmented  by  saving 
and  increases  with  the  progress  of  wealth  ;  but  it  is  reasoned  upon  as, 
at  any  given  moment,  a  predetermined  amount." — J,  8.  Mill :  Tlie  Fort- 
nightly. May,  1869. 


THE    WAGE-FUND    THEORY.  365 

The  wage-fund,  therefore,  may  be  greater  or  less  at  another 
time  ;  but  at  the  time  taken,  it  is  definite.  The  amount  of  it 
can  not  be  increased  by  force  of  law,  or  of  public  opinion,  or 
through  sympathy  and  compassion  on  the  part  of  employers, 
or  as  the  result  of  appeals  or  efforts  on  the  part  of  the  work- 
ing classes.* 

The  sum  so  destined  to  the  payment  of  wages  is  distributed 
by  competition.  If  one  obtains  more,  another  must,  for  that 
reason,  receive  less,  or  be  kept  out  of  employment.  Laborers 
are  paid  out  of  this  sum,  and  out  of  this  alone.  The  whole  of 
it  is  distributed  without  loss,  and  the  average  amount  received 

*  O 

by  each  laborer  is,  therefore,  determined  precisely  by  the  ratio 
existing  between  the  wage-fund  and  the  number  of  laborers, 
or,  as  some  writers  have  preferred  to  call  it,  between  capital 
and  population. f 

The  wage-fund,  at  any  given  time,  being  thus  determined, 
the  rate  of  wages  will  be  according  to  the  number  of  persons 
then  applying  for  employment.];  If  these  be  more,  wages 
will  be  low  ;  if  these  be  fewer,  wages  will  be  high. 

It  thus  appears  that  the  wage-fund — the  aggregate  amount 

*  "  That  which  pays  for  labor  in  every  country  is  a  certain  portion  of 
actually  accumulated  capital,  which  can  not  be  increased  by  the  proposed 
action  of  government,  nor  by  the  influence  of  public  opinion,  nor  by 
combinations  among  the  workmen  themselves.  There  is,  also,  in  every 
country,  a  certain  number  of  laborers,  and  this  number  can  not  be  dimin- 
ished by  the  proposed  action  of  government,  nor  by  public  opinion,  nor 
by  combinations  among  themselves.  There  is  to  be  a  division  now, 
among  all  these  laborers,  of  the  portion  of  capital  actually  there  present." 
— Prof.  A.  L.  Perry,  Pol.  Econ.  In  the  later  editions  of  his  treatise, 
Prof.  Perry  modifies  his  statement. 

f  "  The  circulating  capital  of  a  country  is  its  wage-fund.  Hence,  if 
we  desire  to  calculate  the  average  money  wages  received  by  each  laborer, 
we  have  simply  to  divide  the  amount  of  this  capital  by  the  number  of 
the  laboring  population." — Prof.  H.  Fawcett:  The  Economic  Position  of 
tJie  British  Laborer. 

\ "  More  than  that  amount  (the  wage-fund),  it  is  assumed,  the 
wages-receiving  class  can  not  possibly  divide  among  them  ;  that  amount, 
and  no  less,  they  can  not  but  obtain:  so  that,  the  sum  to  be  divided  being 
fixed,  the  wages  of  each  depend  solely  on  the  divisor,  the  number  of  par- 
ticipants.—/. S.  Mitt:  The  Fortnightly.  Nay,  1869. 


366  POLITICAL  ECONOMY. 

to  be  distributed  as  wages— is,  at  any  given  time,  irrespective 
alike  of  the  number  and  of  the  industrial  quality  of  the  wages 
class.  The  average  rate  of  wages  is  determined  exclusively 
by  a  comparison  of  the  amount  of  that  fund  with  the  number 
of  that  class.  The  industrial  quality  of  the  laborers  has 
nothing  to  do,  at  the  time,  with  their  wages. 

454.  The  Doctrine  Examined. — What  shall  we  say  of  this 
doctrine  of  a  Wage-Fund  ?  Several  objections  may  be  urged 
against  it,  any  one  of  which  would  be  fatal. 

First.  The  doctrine  assumes  that  wages  are  always  and 
necessarily  paid  out  of  capital,  the  results  of  past  accumula- 
tion. As  a  matter  of  fact,  wages  in  England,  where  this 
theory  of  wages  originated,  were,  at  one  time,  early  in  the 
century,  paid,  financially  speaking,  out  of  capital  generally, 
if  not  universally.  That  condition  of  things  has  continued 
to  the  present  time. 

Why  was  this  ?  Was  it  of  the  essence  of  the  matter,  or  an 
accident  ? 

I  answer,  wages  were  advanced  by  capital  in  England, 
because  capital  had  there  been  accumulated  to  so  great  extent 
that  employers  were  able  to  lay  down  the  whole  of  the  wages 
to  be  paid  as  soon  as  the  service  was  rendered,  even  before 
the  products  were  harvested  or  marketed,  while,  at  the  same 
time,  wages  were  and  had  been  so  low  that  the  laborers  had 
been  able  to  save  little  or  nothing  out  of  their  earnings  in  the 
past,  and  were  consequently  obliged  to  look  to  their 
employers  for  subsistence,  almost  from  the  moment  they 
began  to  work. 

But  during  the  same  period  a  very  different  relation  between 
laborer  and  employer,  as  regarded  the  payment  of  wages, 
existed  in  the  United  States.  Employers  were  paying  their 
laborers  by  the  year,  giving  them  their  wages,  in  full,  only 
when  the  crops  were  harvested  or  the  goods  marketed,  making 
meanwhile  such  advances  as  their  means  allowed,  or  as  were 
required  by  the  varying  wants  of  their  workmen,  no  small 
part  of  whom  had  saved  enough  out  of  the  liberal  earnings  of 
former  years  to  support  themselves  and  their  families  until 
the  year's  wages  should  be  paid. 


WAGES  PAID   OUT  OF  PRODUCT.  367 

In  other  words,  the  industrial  conditions  were  more  favor- 
able to  the  payment  of  wages  in  the  United  States,  while  in 
England  the  financial  conditions  were  more  favorable.  But 
it  is  the  industrial  conditions  which  determine  the  amount  of 
wages,  the  necessaries,  comforts  and  luxuries  which  the 
laborer  receives  for  his  services.  The  financial  conditions 
only  determine  the  manner  and  time  of  payment,  whether  at 
once  or  on  a  future  day,  whether  in  money  or  in  goods. 

455.  Wages  may  be  advanced  out  of  Capital,  but  are  paid 
out  of  the  Product. — But  even  if,  in  fact,  all  wages  were  laid 
down  by  the  employer  as  soon  as  services  were  rendei'ed, 
before  the  crops  were  harvested  or  the  goods  marketed,  it 
would  not  follow  that  the  existence  of  capital  furnished  the 
reason  for  the  employment  of  labor,  or  that  the  amount  of 
that  capital  furnished  the  measure  of  the  wages  to  be  paid. 

An  employer  pays  wages  to  purchase  labor,  not  to  expend 
a  fund  of  which  he  may  be  in  possession.  He  purchases 
labor,  not  because  he  wishes  to  keep  it  employed,  but  as  a 
means  to  the  production  of  wealth.  He  produces  wealth,  not 
for  the  sake  of  producing  it,  but  with  a  view  to  a  profit  to 
himself,  individually,  in  that  production. 

If  a  person  have  wealth,  that,  of  itself,  constitutes  no 
reason  why  he  should  expend  any  poi'tion  of  it  on  labor,  on 
machinery,  or  on  materials.  It  is  only  as  he  sees  that  he  can 
increase  that  wealth  through  production,  that  the  impulse  to 
employ  it  in  those  directions  is  felt.  But  for  the  profits  by 
which  he  hopes  thus  to  increase  his  store,  it  would  be  alike 
easier  and  safer  for  him  to  keep  his  wealth  at  rest  than  to  put 
it  in  motion  for  the  benefit  of  others.  The  mere  fact  that  the 
employer  has  capital  at  his  command,  no  more  constitutes  ?, 
reason  why  he  should  use  it  in  production,  when  he  can  get 
no  profits,  than  the  fact  that  the  laborer  has  arms  and  legs 
constitutes  a  reason  why  he  should  work  when  he  can  get  no 
wages. 

We  repeat :  the  employer  purchases  labor  with  a  view  to 
the  product  of  labor.  The  kind  and  amount  of  that  product 
determine  what  wages  he  can  afford  to  pay.  He  must,  in  the 
long  run,  pay  less  than  that  product,  less  by  a  sum  which  is  to 


368  POLITICAL    ECONOMY. 

constitute  his  own  profits.  If  the  product  is  to  be  greater,  he 
can  afford  to  pay  more  ;  if  it  is  to  be  smaller,  he  must,  for  his 
own  interest,  pay  less. 

It  is,  then,  for  the  sake  of  future  production  that  the  labor- 
ers are  employed,  not  at  all  because  the  employer  has  posses- 
sion of  a  fund  which  he  must  disburse.  IT  is  THE  VALUE  OP 

THE  PRODUCT,  SUCH  AS  IT  IS  LIKELY  TO  PROVE,  WHICH 
DETERMINES  THE  AMOUNT  OF  THE  WAGES  THAT  CAN  BE  PAID. 

Thus,  it  is  production,  not  capital,  which  furnishes  the  motive 
for  employment  and  the  measure  of  wages. 

In  saying  that  production  furnishes  the  measure  of  wages, 
it  is,  of  course,  not  to  be  understood  that  wages  equal  the 
product  of  industry.  The  advocate  of  the  wage-fund  asserts 
that  capital  furnishes  the  measure  of  wages.,  meaning  that  the 
amount  to  be  paid  in  wages  is  some  part  of  the  aggregate 
capital  of  the  country,  the  ratio  between  the  two  varying 
from  time  to  time,  indeed,  but  being,  for  any  given  moment, 
fixed  by  the  existing  conditions  of  industry.  So  I  say,  pro- 
duction furnishes  the  measure  of  wages,  meaning  that  the 
amount  to  be  paid  in  wages  is  some  part  of  the  product  of 
industry,  the  ratio  between  the  two  varying,  probably,  from 
time  to  time,  from  causes  innumerable,  but  being,  for  any 
given  moment,  fixed  by  existing  conditions. 

456.  No  Wage-Fund  Irrespective  of  the  Industrial 
Quality  of  the  Laborers.— But  if  production  furnishes  the 
measure  of  wages,  the  amount  so  to  be  paid  can  not  be  irre- 
spective of  the  industrial  quality  of  the  laboring  class.  If  we 
assume  that  upon  a  cultivated  island  are  tools  and  carts  and 
animals  for  draught,  and  other  forms  of  capital  adequate  for 
a  thousand  laborers,  the  production  will  vary  within  a  very 
wide  range  according  to  the  industrial  quality  of  the  laborers 
using  that  capital.  If  we  suppose  them  to  be  East  Indians, 
we  shall  have  a  certain  annual  product ;  if  we  suppose 
Russian  peasants  to  be  substituted  for  East  Indians,  we  shall 
have  twice  or  three  times  that  product  ;  if  we  suppose 
Englishmen  to  be  substituted  for  Russians,  we  shall  have  the 
product  again  multiplied  two  or  three  fold.  An  Englishman 
will  do  from  three  to  thirty  times  as  much  work  in  a  day  as  a 


WAGES  PAID    OUT  OF  PROFIT.  369 

Bengalee,  according  as  the  nature  of  the  work  makes  smaller 
or  larger  demands  upon  the  skill  and  strength  of  the  laborer. 
By  the  wage-fund  theory,  the  rate  of  wages  would  remain  the 
same  through  these  changes,  inasmuch  as  the  aggregate 
capital  of  the  Island  and  the  number  of  laborers  in  the  market 
would  be  unchanged,  the  only  difference  being  found  in  the 
substitution  of  more  efficient  for  less  efficient  laborers. 
According  to  the  view  here  advanced,  on  the  contrary,  the 
amount  to  be  paid  in  wages  should  and  would  rise  with  the 
increased  production  due  to  the  higher  industrial  quality  of 
the  laboring  population.  "Whether  it  would  rise  in  exact 
proportion  thereto  is  not  the  question  we  are  now  considering. 

457.  No  Wage-Fund  Irrespective  of  the  Number  of 
Laborers-— But,  further,  if  production  furnishes  the  measure 
of  wages,  the  amount  to  be  so  paid  cannot  be  irrespective  of 
the  numbers  of  the  laboring  class. 

By  the  wage-fund  theory,  the  amount  that  can  and  will  be 
paid  in  wages  is  a  predetermined  dividend,  the  number  of  la- 
borers being  the  divisor,  and  the  average  wages  the  quotient. 
Just  in  proportion  as  the  number  of  laborers  is  diminished  will 
the  average  wages  be  raised  ;  just  in  proportion  as  the  number 
of  laborers  is  increased,  will  the  average  wages  be  lowered. 
"  There  is  no  use/'  writes  one  of  the  expositors  of  this  doc- 
trine, "in  arguing  against  any  one  of  the  four  fundamental 
rules  of  arithmetic.  The  question  of  wages  is  a  question  of 
division.  It  is  complained  that  the  quotient  is  too  small. 
Well,  then,  how  many  ways  are  there  to  make  a  quotient 
larger  ?  Two  ways.  Enlarge  your  dividend,  the  divisor  re- 
maining the  same,  and  the  quotient  will  be  larger;  lessen  your 
divisor,  the  dividend  remaining  the  same,  and  the  quotient 
will  be  larger." 

This  theory,  that  the  number  of  laborers  constitutes  the  di- 
visor of  a  predetermined  dividend,  is  manifestly  erroneous,  be-' 
cause  it  leaves  out  of  account  the  influence  upon  production 
of  the  condition  of  Diminishing  Returns,  or  the  reverse,  in  ag- 
riculture, as  well  as  the  mechanical  effects  of  the  division  of 
labor. 

Let  us,  first,  suppose  that  the  island  occupied  by  the  body 


37°  POLITICAL  ECONOMY. 

of  one  thousand  laborers  before  referred  to,  contains  a  great 
breadth  of  choice  arable  land,  of  which  the  laborers  have  been 
hitherto  able  to  cultivate  but  a  small  portion.  If,  now,  the 
number  of  laborers  be  increased  twenty  per  cent,  with  a  cor- 
responding increase  of  capital,  production  will  be  more  than 
proportionally  increased  (see  par.  50),  through  the  effect  of 
the  division  of  labor  and  the  union  of  forces  in  production. 
Here,  again,  we  find  the  wage-fund  theory  at  fault.  So  great 
is  the  virtue  of  this  cause  that  an  increase  of  laborers — before 
the  condition  of  diminishing  returns  is  reached — might  be  fol- 
lowed by  an  increase  of  production  even  in  the  lack  of  a  pro- 
portional increase  of  capital,  or  indeed,  of  any  increase  at  all. 

458.  But  now  let  us  take  the  condition  of  diminishing  re- 
turns in  agriculture,  that  state  where,  if  anywhere,  it  might 
be  supposed  the  wage-fund  theory  would  hold  good.  In  such 
a  condition,  the  soil,  as  we  have  seen  (par.  51),  fails  to  re- 
spond adequately  to  new  applications  of  labor  ;  the  product 
falls  off.  not  absolutely,  but  relatively  ;  and,  thus,  while  the 
aggregate  crops  are  larger  through  the  incoming  of  new  la- 
borers, the  actual  amount  falling  to  each  laborer  is  diminished. 
Wages  fall.  But  does  this  happen  in  accordance  with  the  eco- 
nomic doctrine  we  are  considering  ?  No ;  per  capita  wages 
fall,  because  per  capita  production  is  diminished,  although 
often  this  is  coincident  with  an  actual  increase  of  capital. 

It  would  be  brutal  to  inflict  further  blows  upon  a  body  so 
exanimate  as  the  theory  of  the  Wage-Fund.  The  natural  and 
the  literary  history  of  this  doctrine  will  be  found  at  length  in 
an  article  in  the  North  American  Review,  for  January,  1875. 


VI. 

THE      MULTIPLE      OB     TABULAR     STANDARD     OF      DEFERRED 
PAYMENTS. 

459.  We  saw  (par.  191)  that,  with  a  view  to  avoiding  the 
fluctuations  to  which  even  the  precious  metals  are  subject, 
tHrough  long  periods  of  time,  it  has  been  proposed  by  writers 


THE    TABULAR  STANDARD.  371 

of  eminence  to  create  a  multiple  or  tabular  standard  of  value. 
This  is  to  be  done  by  joining  together  a  number  of  articles,  of 
importance  in  the  economy  of  daily  life,  in  such  a  way  that  the 
fluctuations  of  value  in  the  several  constituent  articles  shall 
largely  neutralize  each  other. 

460.  The  details  of  the  scheme  as  proposed  by  these  writers 
may  be  stated  as  follows.  A  number  of  articles  in  general  use, 
corn,  beef,  potatoes,  wool,  cotton,  silk,  tea,  sugar,  coffee,  indigo, 
timber,  iron,  coal,  and  others,  shall  be  taken,  in  a  definite 
quantity  of  each,  so  many  pounds  or  bushels  or  cords  or  yards, 
to  form  the  standard  required.  The  value  of  these  articles, 
in  the  quantities  specified  and  all  of  standard  quality,  shall  be 
ascertained  monthly  or  weekly  by  government,  and  the  total 
sum  which  would  at  the  time  purchase  this  bill  of  goods  shall 
be,  thereupon,  officially  promulgated.  Persons  may  then,  if 
they  choose,  make  their  contracts  for  future  payments  in  terms 
of  this  multiple  or  tabular  standard. 

For  example,  suppose  I  sell  a  house  to-day,  the  value  of 
which,  as  agreed  upon  between  myself  and  the  purchaser,  is 
$20,000,  one-half  to  be  paid  down  at  the  time,  two-tenths  to 
l>e  paid  in  two  years,  three-tenths  in  five  years,  with  interest 
on  the  last  two  sums.  One-half  of  the  purchase  money,  being 
payable  at  once,  is  paid  in  money,  $10,000  in  gold  or  bank 
notes.  For  the  rest,  the  purchaser  and  I  look  at  the  last  pub- 
lished statement  of  the  government  commissioner,  and  find  the 
value  of  a  unit  of  the  tabular  standard  to  be  $12.50  ;  that  is, 
$12.50  will  now  purchase  the  bill  of  goods  which  form  the 
standard.  The  purchaser  then  gives  me  two  notes,  one  for 
320  units  of  the  tabular  standard,  payable  in  two  years,  and 
one  for  480  units,  payable  in  five  years,  with  interest  at  six 
per  cent.,  per  annum,  meanwhile.  At  the  end  of  the  first  year, 
the  two  parties  interested  look  in  the  official  gazette,  and  find 
the  value  of  the  unit  at  the  time  to  be  $12.75.  There  is  then 
to  be  paid  one  year's  interest  on  each  note,  amounting,  in  the 
case  of  the  first  note,  to  19.2  units,  which  obligation  is  dis- 
charged by  the  payment  of  $244.80  in  current  money  ;  and, 
in  the  case  of  the  second  note,  to  28.8  units,  which  obligation 
is  discharged  by  the  payment  of  $367.20. 


372  POLITICAL  ECONOMY. 

At  the  end  of  the  second  year  the  value  of  a  unit  of  the 
tabular  standard  might  be  ascertained  to  be  $13,  or  $12.25  ; 
in  the  latter  case  the  interest  on  the  first  note  is  discharged 
by  the  payment  of  $235.20,  and  that  on  the  second  note  by 
the  payment  of  $352.80.  If,  however,  the  value  of  a  unit 
has  been  ascertained  to  be  $13,  the  interest  on  the  first  note 
will  be  $249.60,  and  that  on  the  second  note  $374.40. 

But  the  principal  of  the  first  note,  320  units,  is  now  to  be 
paid.  A  similar  computation  shows  that,  if  the  value  of  the 
tabular  standard  is  $12.25,  the  maker  of  the  note  must  pay 
$3,920  to  discharge  his  obligation  ;  if  the  value  of  the  unit  be 
$13,  he  must  pay  $4,160. 

461.  What  has  been  Effected? — Now,  without  waiting  for 
the  maturity  of  the  second  note,  let  us  see  what  the  use  of 
the  tabular  standard  has  thus  far  effected.     When  I  sold  my 
house,  two  years  before,  I  gave  the  purchaser  two  years'  credit 
for  two-tenths  of  the  price.     Had  I  taken  the  money  at   the 
time,  it  would  have  bought  me  so  many  pounds  of  beef,  so  many 
bushels  of  corn,  so  much  iron,  coal,  etc.     Now,  at  the  end  of 
the  second  year,  what  I  receive  as  the  stipulated  two-tenths 
payment  for  the  house  will  bring  me  precisely  the  same  amount 
of  beef,  corn,  iron,  coal,  etc.     Meanwhile  the  debtor  has  paid 
me,  every  year,  as  interest,  enough  to  enable  me  to  purchase 
six  parts  in  a  hundred  of  this  entire  list  of  commodities.     The 
purchaser  has  had  the  advantage  of  obtaining  credit,  to  that 
extent,  but  has  derived  no  unearned  benefit  from  the  delay  of 
payment  ;  and,  on  the  other  hand,  has  been  protected  from 
any  loss  through  that  source. 

462.  It  is  to  be  observed  regarding  the  proposed  tabular 
standard,  first,  that  it  is  not  obligatory  upon  any  one  to  use 
it.     Persons  buying  and  selling  still  make  their  contracts  in 
terms    of    money   if   they  please.     The  government  merely 
affords  them  the  opportunity  to  make  their  contracts  payable 
in  units  of  the  tabular  standard,  if  it  be  worth  their  while  to 
do  so.     Secondly,  the  only  machinery  required  for  the  opera- 
tion of  this  system  would  be  a  commission  to  ascertain  the 
current  prices  of  the  articles  on  the  official  list   and  to  publish 
the  same.     No    new  method  of  accounting  would  be  intro- 


THE   TABULAR   STANDARD.  373 

duced.  Interest  and  principal  could  be  computed  as  easily  as 
under  the  present  system.  The  courts  would  enforce  the  obli- 
gation of  contracts  on  precisely  the  same  principles  when 
expressed  in  units  of  the  tabular  standard,  as  when  expressed 
in  dollars  or  pounds  sterling.  Thirdly,  no  new  medium  of 
exchange  would  be  introduced.  The  creditor  would  not  be 
obliged  to  receive,  at  the  maturity  of  the  note,  so  many  cart- 
loads of  vegetable,  animal  and  mineral  products,  to  be  hawked 
about  for  sale.  The  payment,  at  the  maturity  of  the  obliga- 
tion, would  be  made  in  money.  The  only  effect  of  the  intro- 
duction of  the  tabular  standard  would  be  to  decide  how  much 
money  at  that  date  constituted  the  equivalent,  in  the  power 
to  purchase  the  necessaries,  comforts  and  luxuries  of  life,  of  the 
money  which  would  have  been  paid  had  the  sale  been  for  cash. 
In  short,  it  is  a  means  of  giving  and  taking  credit  without 
receiving  an  unearned  advantage  or  suffering  an  undeserved 
injury  through  fluctuations  in  the  value  of  money. 

463.  Is  it  Practicable? — Such  being  the  contemplated 
advantages  of  the  system  of  a  tabular  or  multiple  standard, 
the  question  whether  the  use  made  of  the  system,  if  established, 
would  be  worth  the  small  degree  of  effort  necessarv  to 
establish  it,  is  a  question  which  could  only  be  answered  after 
trial.  The  mere  fact  that  the  scheme  is  sound  and  the 
advantages  of  its  adoption  unquestionable,  would  not  of 
itself  be  sufficient  to  secure  any  considerable  application  of 
this  standard  to  the  actual  operations  of  trade.  It  took 
hundreds  of  years  for  the  Arabic  figures  to  drive  the 
abominably  clumsy  Roman  figures  out  of  the  counting  rooms 
of  great  merchants  and  bankers.  The  slow  progress  of  the 
metric  system,  even  in  this  age  of  innovations  and  of  quick 
communication,  affords  a  measure  of  the  difficulty  of  sup- 
planting one  habit  of  trade  by  another,  however  much  supe- 
rior. 

The  practical  limits  of  this  system,  were  it  to  be  once  intro- 
duced and  tried,  are  fairly  a  matter  of  doubt.  Prof.  Jevons 
deemed  it  practicable  to  extend  this  mode  of  determining  the 
claim  of  the  creditor,  the  obligation  of  the  debtor,  to  ordi- 
nary commercial  paper  having  three  months  or  more  to  run. 


.374  POLITICAL  ECONOMY. 

I  do  not  myself  apprehend  that  the  system  would  trench,  in 
any  considerable  degree,  on  the  field  of  so-called  commerce. 
The  merchant,  buying  every  day  and  selling  every  day,  giv- 
ing notes  with  one  hand  and  taking  them  with  the  other,  may 
fairly  look  to  see  his  losses,  through  fluctuations  in  the  pur- 
chase power  of  money,  offset  by  his  gains  through  the  same 
source  ;  or,  in  a  worse  result,  he  is  in  a  position,  by  greater 
energy  and  economy,  to  make  good  his  capital.  It  is  essen- 
tial, or  at  least  highly  important  to  the  conduct  of  business, 
in  the  modern  organization  of  industrial  society,  that  the  mer- 
chant or  manufacturer  shall  be  able  to  tell  just  where  he 
stands,  at  any  time  ;  to  strike  an  exact  balance  between  assets 
and  liabilities.  But  this  would  not  be  possible  with  the  tabu- 
lar standard.  A  note  for  400  units,  payable  in  September, 
might  not  offset  a  note  for  400  units  receivable  in  August  or 
October.  The  difference  might  be  small  ;  it  might  also  be 
large.  It  would  thus  be  impracticable  for  the  man  of  business 
to  cast  up,  at  a  moment,  the  results  of  any  given  transaction, 
or  ascertain  precisely  his  own  standing.  By  the  very  descrip- 
tion of  the  system,  every  note  given  or  taken  would  have  to 
be  liquidated. 

Commerce  will  not  tolerate  any  such  obstruction  ;  and  the 
scheme,  so  far  as  this  application  is  concerned,  may  be  dis- 
missed at  once.  Commerce  will  do  the  best  it  can  with  the 
use  of  money  and  of  credit  expressed  in  terms  of  money. 
Nothing  is  more  characteristic  of  the  commercial  spirit  than 
the  disposition  to  take  the  evil  with  the  good,  roughly  to 
strike  the  average  of  gain  and  loss,  promptly  to  charge-off 
bad  debts,  always  looking  on  towards  the  future,  never  regret- 
ting the  past.  This  spirit  leads,  doubtless,  into  many  errors, 
but  it  is  the  very  life  of  commerce. 

464.  For  what  classes  of  contracts,  then,  might  the  multiple 
tender  be  advantageously  employed  ? 

Certainly  the  need  of  such  a  standard  of  deferred  payments 
is  most  imperative  in  the  case  of  those  who  are  not  in  the 
way  of  repairing  any  losses  they  may  suffer  through  fluctua- 
tions in  the  value  of  money  ;  upon  whom  the  full  effects  of 
•depreciation  fall  directty   and    remain  without  relief.     And 


TRADE    UNIONS. 


375 


while  the  advantages  of  such  safeguards  upon  the  value  of" 
debts  here  rise  to  their  maximum,  the  obstruction  sinks  here 
to  a  minimum.  In  permanent  investments  of  property  not 
the  least  inconvenience  will  be  encountered  by  the  scheme  of 
a  multiple  tender,  which  might  be  extended  to  the  cases  of  all 
who  have  definitively  retired  from  active  life,  carrying  away 
with  them  all  they  will  ever  have  to  support  old  age  and 
provide  for  their  children  ;  to  the  cases  of  trustees  and 
guardians,  under  a  solemn  responsibility  in  the  care  of  estates, 
where  loss  is  more  to  be  dreaded  than  gain  to  be  desired  ;  to 
the  cases  of  institutions  whose  funds  are  sequestered  from  the 
stock  of  active  capital,  for  pious  and  charitable  uses.  The 
funds  of  savings  banks  might  be  put  under  the  same  safe- 
guard, and  government  loans  might  also  be  issued  in  terms  of 
the  multiple  tender. 

VII. 

TEADE    UNIONS    AND    STRIKES. 

465.  Wholly  a  Practical  Question. — It    has    been    shown' 
(pars.  348-56)  under  the  title  of  Distribution,  that  the  question,, 
whether  any  law  or  institution  does  or  does  not  promote  the 
freedom  of  industrial  movement  enjoyed  by  the  community,, 
is  a  question  not  to  be  decided  d  priori.     Consideration  must 
be  had  of  the  actual  effects  of  such  a  law  or  institution,  COHH 
parison  being  made  not  between  the  state  which  will  result 
therefrom  and  an  ideal  state  of  perfect  economic  mobility,  but 
between  the  new  condition  and  the  condition  which  does  exist 
or  probably  would  exist  without  that  law  or  institution. 

Let  us  take  the  case  of  Trade  Unions,  so  called,  which 
undertake,  through  agreements  among  themselves  and  perhaps 
simultaneous  strikes  against  their  employers,  to  fix  wages,, 
regulate  the  hours  of  labor,  and  control  many  of  the  various 
details  of  industry.  To  the  first  suggestions  of  such  associ- 
ations, the  economist  promptly  and  properly  objects  that  all 
combinations  in  the  sphere  of  economics  are  opposed  to  compe- 
tition. The  objection  is  well  taken,  and  it  remains  for  the- 


376  POLITICAL   ECONOMY. 

advocate  of  trade  unions  to  show  sufficient  cause  for  thus 
obstructing  competition. 

The  economist  further  alleges  that  such  associations  are 
liable,  are  even  likely,  to  fall  under  the  control  of  demagogues, 
who  will  use  their  power  to  bully  or  harass  employers,  to  make 
unreasonable  demands,  and  to  precipitate  labor  contests,  in 
which  the  interests  of  all  classes  will  be  sacrificed  to  the  self 
importance  of  a  few  managers.  This  point,  again,  is  well 
taken.  That  liability,  that  likelihood,  exists,  and  the  advocate 
of  trade  unions  is  bound  to  show  no  small  degree  of  practical 
benefit  resulting  from  such  associations,  to  offset  the  mischief 
they  are  almost  certain  to  commit  in  the  ways  indicated. 

466.  On  the  other  hand,  the  advocate  of  trade  unions 
alleges  that  these  associations,  though  in  form  opposed  to 
competition,  and  though  subject  to  many  abuses,  do  yet,  in 
certain  states  of  industrial  society,  assist  the  laborers  as  a 
class  to  assert  their  interests  in  the  distribution  of  the  product 
of  industry.  This  claim  is  not,  on  the  face  of  it,  unreasonable. 

We  have  seen  (pars.  343-5)  that  competition,  perfect  com- 
petition, affords  the  ideal  condition  for  the  distribution  of 
wealth.  But  as  we  saw  in  the  case  of  the  audience  in  a 
theater  that  had  taken  fire,  the  action  of  men  in  concert  and 
under  discipline,  while  it  can  never  be  wiser  than  that  of  men 
acting  coolly  and  intelligently  for  themselves,  may  be  far 
wiser  than  the  action  of  men  stricken  with  panic  and  hurried 
into  a  senseless,  furious  rush.  Respecting  trade  unions,  the 
question  is  not,  whether  joint  action  is  superior  to  the  indi- 
vidual action  of  persons  enlightened  as  to  their  industrial 
interests,  but  whether  joint  action  may  not  be  better  than  the 
tumultuous  action  of  a  mass,  each  pursuing  his  individual 
interest  with  more  or  less  of  ignorance,  fear  and  passion. 

Now,  with  a  body  of  employers,  few,  rich  and  powerful, 
having  a  friendly  understanding  among  themselves  and  acting 
aggressively  for  the  reduction  of  wages  or  the  extension 
of  the  hours  of  work,  and,  on  the  other  side,  a  body  of  labor- 
ers, numerous,  ignorant,  poor,  mutually  distrustful,  while  each 
feels  under  a  terrible  necessity  to  secure  employment,  who 
shall  say  that  such  a  body  of  laborers  might  not  be  better  able 


STRIKES.  377 

to  resist  the  destructive  pressure  from  the  employing  body, 
if  organized  and  disciplined,  with  a  common  purse  and 
with  mutual  obligations  enforced  by  the  public  opinion  of  their 
class  ? 

I  said,  destructive  pressure,  for  we  saw  that  the  pressure  of 
competition,  if  it  be  unequal,  may  lead  to  the  degradation  of 
the  laboring  class  (pars.  345-7),  just  as  the  waves  over  which 
and  through  which  a  ship  rides  unharmed,  when  herself  free 
to  move,  become  crushing  and  destructive,  let  once  the  ship's 
bow  be  jammed  between  rocks  or  lodged  in  the  sands. 

467.  II.  Strikes. — The  question  of  the  economic  influence  of 
strikes  is  a  distinct  question.  There  have  been  trades  unions 
which  seldom  or  never  resorted  to  strikes.  Some  of  the  great- 
est strikes  have  occurred  without  the  agency  of  organized  trade 
unions.  For  myself  I  entertain  no  doubt  that  the  early  strikes 
in  England,  which  followed  the  repeal,  in  1824,  "of  the  Combi- 
nation acts,  were  essential  to  the  breaking  up  of  the  power  of 
custom  and  fear  over  the  minds  of  the  working  classes  of  the 
Kingdom.  For  centuries  it  had  been  a  crime,  by  statute,  for 
workmen  to  combine  to  raise  wages  or  shorten  the  hours  of 
labor,  while  masters  were  left  perfectly  free  to  combine  to 
lower  wages  or  lengthen  the  hours  of  labor.  The  beginning 
of  the  century  found  the  laboring  classes  of  England  almost 
destitute  of  political  franchises,  unaccustomed  to  discussion 
and  the  free  communication  of  thought,  tax-ridden,  poverty- 
stricken,  illiterate.  What  else  than  the  series  of  fierce  revolts, 
the  rebellions  of  down-trodden  labor,  which  followed  Huskis- 
son's  act  of  1824,  could,  in  an  equal  period  of  time,  or,  indeed, 
at  smaller  cost,  have  taught  the  employers  of  England  to 
respect  their  laborers,  and  have  taught  the  laborers  of  England 
to  respect  themselves  ;  could  have  made  the  latter  equally  con- 
fident and  self-reliant  in  pressing  home  a  just  demand,  or  made 
the  former  equally  solicitous  to  refuse  no  demand  that  could 
reasonably  be  conceded  ? 

For,  be  it  remarked,  perfect  competition,  which  affords  the 
only  absolute  security  possible  for  equitable  and  beneficial  dis- 
tribution, requires  that  each  and  every  man  for  himself  shall 
unremittingly  seek  and  unfailingly  find  his  'best  market.  If 


378  POLITICAL  ECONOMY. 

for  any  reason,  whether  from  physical  obstruction  or  legal 
inhibition,  or  from  his  own  poverty  or  weakness  of  will  or 
ignorance,  or  through  distrust  of  his  fellows  or  a  habit  of  sub- 
mission to  his  employer  or  his  social  superiors,  any  man  fails, 
in  fact,  to  reject  the  lower  price  and  to  seize  the  higher  price, 
the  rule  of  competition  is  violated  ;  all  immunity  from  deep 
and  permanent  economic  injury  is  lost;  the  man  may  be  crushed 
in  his  spirit,  in  his  health,  in  his  habits  of  life,  and  may  thus 
sink  finally  and  hopelessly  to  a  lower  industrial  grade.  The 
history  of  mankind  is  full  of  examples  of  large  popu- 
lations broken  down  by  a  competition  to  which  they  were 
unequal,  until  they  have  become  pauperized,  brutalized  and 
diseased  beyond  the  power  of  any  purely  economic  causes  to 
raise  them  upwards  and  restore  them  to  industrial  manhood. 

468.  Strikes  are  the  Insurrections  of  Labor. — In  claiming 
that  strikes  may,  in  certain  states  of  industrial  society,  in  their 
ultimate  effect  really  aid  the  laboring  classes,  let  me  not  be 
misunderstood.  To  strikes  I  assign  the  same  function  in  indus- 
try which  insurrections  have  performed  in  the  sphere  of  poli- 
tics. Had  it  not  been  for  the  constant  imminence  of  insurrec- 
tion, England  would  not  through  several  centuries  have  made 
any  progress  towards  freedom,  or  even  have  maintained  its 
inherited  liberties. 

Strikes  are  the  insurrections  of  labor.  They  are,  wholly,  a 
destructive  agency.  They  have  no  creative  power,  no  heal- 
ing virtue.  Yet,  as  insurrections  have  played  a  most  important 
part  in  the  political  elevation  of  downtrodden  people,  through 
the  fear  they  have  engendered  in  the  minds  of  oppressors,  or 
through  the  demolition  of  out-worn  institutions  which  have 
become  first  senseless  and  then  pernicious,  so  strikes  may 
exert  a  most  powerful  and  salutary  influence  in  breaking  up  a 
crust  of  custom  which  has  formed  over  the  remuneration  of  a 
body  of  laborers,  or  in  breaking  through  combinations  of 
employers  *  to  withstand  a  legitimate  advance  of  wages. 


*  "  Masters  are  always  and  everywhere  in  a  sort  of  tacit,  but  constant 
and  uniform,  combination  not  to  raise  the  wages  of  labor  above  their 
actual  rate." — Adam  Smith. 


WHAT  IS    THE   FAILURE   OF  A   STRIKE? 


379 


Doubtless  even  more  important  than  the  specific  objects 
realized  by  strikes,  has  been  the  permanent  impression  produced 
upon  the  minds  and  the  temper  of  both  employers  and 
employed.  The  men  have  acquired  confidence  in  themselves 
and  trust  in  each  other  ;  the  masters  have  been  taught  respect 
for  their  men,  and  a  reasonable  fear  of  them. 

Nothing  quickens  the  sense  of  justice  and  equity  like  the 
consciousness  that  unjust  and  inequitable  demands  or  acts  are 
likely  to  be  promptly  resented  and  strenuously  resisted. 
Nothing  is  so  potent  to  clarify  the  judgment  and  sober  the 
temper,  in  questions  of  right  or  wrong,  as  to  know  that  a 
mistake  will  lead  to  a  hard  and  a  long  fight. 

469.  What  is  the  Failure  of  a  Strike? — Nor  must  it  be 
thought  that  because  strikes  often,  perhaps  we  might  say  com- 
monly, fail  of  their  immediate  object,  they  are,   therefore, 
nugatory.     Many  an  insurrection  has  been  put  down  speedily, 
perhaps  with  great  slaughter,    which  has  been  followed  by 
remission  of  taxes,  by  redress  of  grievances,  by  extension  of 
charters    and   franchises.     It  may   be    considered   doubtful 
whether  the  successful  or  the  unsuccessful   insurrections  of 
England  have  done  more  to  advance  English  liberties.     Of 
the  rising  of  the  peasantry  against  Richard  II.,  which  was 
suppressed  in  a  few  days,  Prof.  Thorold  Rogers  says  :    "  The 
rebellion  was  put  down,  but  the  demands  of  the  villains*  were 
silently  and  effectually  accorded.     As  they  were  masters  for  a 
week  of  the  position,  the  dread  of  another  servile    war  pro- 
moted the  liberty  of  the  serf."     Even  an  unsuccessful  strike 
may    make     employers    more     moderate,     considerate    and 
conciliatory,  as  they  recall  the  anxieties,  the  struggles  and  the 
sacrifices  of  the  conflict. 

470.  Better  than  Strikes.— Yet,  as  insurrections  mark  off 
the  first  stages  of  the  movement  towards  political  freedom,  so 
strikes  belong  to  the  first  stages  of  the  elevation  of  masses  of 
labor,  long  abused  and  deeply  debased.     Happy  is  that  people, 
and  proud  may  they  be,  who  can  enlarge  their  franchises 
and  perfect  their  political  forms   without  bloodshed  or  the 

*  Persons  holding  land  by  a  servile  tenure. 


380  POLITICAL  ECONOMY. 

threat  of  violence,  the  long  debate  of  reason  resulting  in  the 
glad  consent  of  all.  In  like  manner,  no  body  of  laborers  can 
get  for  themselves  by  extreme  measures  so  much  of  honor  and 
of  profit  as  they  will  when,  through  cultivating  moderation, 
good  temper  and  the  spirit  of  equity,  they  attain  the 
capability  of  conducting  their  probably  unavoidable  disputes 
with  the  employing  class  to  a  successful  conclusion  without 
recourse  to  the  brutal  and  destructive  agency  of  strikes. 
With  political  rights  such  as  are  enjoyed  by  all  classes  in  the 
United  States,  with  universal  education,  free  land,  the  quick 
communication  of  ideas,  the  cheap  transportation  of  persons 
and  effects,  the  abundant  opportunities  offered  for  accumulat- 
ing and  investing  savings,  it  is  a  shame  to  us,  as  a  people, 
that  we  have  not  yet  made  for  ourselves  a  better  way  out  of 
our  industrial  disputes. 

471.  III.  Factory  Acts. — We  should  apply  the  same  tests  to 
any  existing  or  projected  legislation  intended  for  the  relief  of 
the  laboring  classes,  such  as  acts  restricting  the  hours  of 
labor,  providing  for  the  safety  of  operatives  against  accidents 
from  machinery,  directing  the  sanitary  inspection  of  work- 
shops and  factories,  prohibiting  the  employment  of  children 
of  tender  age  or  of  women  underground,  or  in  work  unsuited 
to  their  sex,  or  immediately  before  or  after  confinement.  The 
one  question  in  regard  to  each  such  measure  is  not  whether 
its  intention  is  philanthropic  or  otherwise  ;  not  even  whether 
it  does  or  does  not,  in  form,  violate  the  principle  of  competi- 
tion ;  but  whether  it  does,  in  effect,*  and  in  the  large,  the 
long,  result,  leave  the  laboring  classes  better  off  or  worse  off, 
as  to  the  ability  and  disposition  to  seek  and  to  find  their  best 
market  ;  whether,  in  fact,  in  the  condition  of  industriaj 
society  then  and  there  existing,  it  promotes  or  retards 
competition. 

The  beginning  of  the  present  century  found   children  of 

*  "  In  discussing  these  matters,  we  need,  above  all  tilings,  discrimina- 
tion. One  hundred  modes  of  government  interference  might  be  mentioned 
of  which  fifty  might  be  very  desirable  and  fifty  condemnable.  In  each 
case,  as  I  contend,  we  must  look  to  the  peculiar  aim,  purpose,  means  and 
circumstances  of  the  case. " — Prof.  Jettons:  Tlie  State  in  Relation  to  Labor. 


FACTORY    LAWS.  381 

five,  and  even  of  three  years  of  age,  in  England,  working  in 
factories  and  brick-yards  ;  women  working  underground  in 
mines,  harnessed  with  mules  to  carts,  drawing  heavy  loads  ; 
found  the  hours  of  labor  whatever  the  avarice  of  individual 
mill-owners  might  exact,  were  it  thirteen,  or  fourteen  or 
fifteen  ;  found  no  guards  about  machinery  to  protect  life  and 
limb  ;  found  the  air  of  the  factory  fouler  than  language 
could  describe,  even  could  human  ears  bear  to  hear  the  story. 

472.  English  Factory  Legislation.— The  factory  legisla- 
tion of  England,  the  necessity  and  economic  justification  of 
which  the  Duke  of  Argyll  has  called  (par.  248)  one  of  the 
great  discoveries  of  the  century  in  the  science  of  government, 
began  in  1802,  with  an  act  which  limited  the  hours  of  labor 
in  woolen  and  cotton  mills  to  twelve,  exclusive  of  meal  times, 
imposed  many  sanitary  regulations  upon  the  .working  and 
sleeping  rooms  of  operatives,  required  the  instruction  of 
children  during  the  first  four  years  of  apprenticeship,  and 
provided  an  official  inspection  of  establishments  for  the  due 
execution  of  the  law.  Further  legislation  was  had  in  1816 
and  1831  ;  while  in  1833  was  passed  the  important  act  known 
as  3d  and  4th  William  IV.  (ch.  103),  which  forbade  night 
work  in  the  case  of  all  persons  under  eighteen  years,  and 
limited  the  labor'  of  such  persons  to  twelve  hours,  inclusive  of 
an  hour  and  a  half  for  meals  ;  prohibited  the  employment  of 
children  under  nine  years  of  age — while,  between  the  ages  of 
nine  and  thirteen,  the  hours  of  labor  were  reduced  to  eight  ; 
prescribed  a  certain  number  of  half-holidays,  and  required 
medical  certificates  of  health  on  the  admission  of  children  to 
factories.  Numerous  acts  have  enlarged  the  scope  of  these 
provisions  and  extended  them  to  other  classes  of  workshops 
and  factories  ;  while,  with  the  good  faith  and  thoroughness 
characteristic  of  English  administration  of  law,  a  rigid  and 
relentless  inspection  compels  a  punctilious  compliance  with 
these  provisions  in  every  workshop  and  factory  of  the  king- 
dom. The  principle  of  the  English  Factory  acts  has  been 
slowly  extended  over  the  greater  part  of  Europe. 

473.  Economists  Oppose  Factory  Legislation.— Unfortun- 
ately for  political  economy,  its  professors  in  the  Universities, 


382  POLITICAL  ECONOMY. 

in  Parliament,  and  in  the  press,  generally  ranged  them- 
selves in  opposition  to  this  legislation.  Acting  upon  a  series 
of  arbitrary  assumptions  which  fell  far  short  of  the  facts  of 
human  nature,  the  English  economists  insisted  upon  attribu- 
ting to  the  individual  initiative  of  the  laborer,  however 
miserable  and  blind  and  weak,  however  overborne  by  circum- 
stances and  bound  to  his  place  and  work  by  poverty,  ignorance 
and  inertia,  all  that  economic  virtue  which  belongs  to  the 
individual  initiative  of  the  laborer  when  fully  alive  to  his  own 
interest,  alert  in  seeking  the  highest  price  for  his  services  or 
commodities,  and  able  to  move  freely  to  his  best  market  with- 
out hindrance  from  any  source,  whether  within  or  without  him- 
self. They  asserted  that  labor  was  fully  competent  to  protect 
itself  against  abuses,  if  left  free  by  law.  They  asserted  that 
all  restrictions  upon  industry  are  obstructive,  failing  to  see  that 
while  restriction  and  regulation  are  obstructive  as  against  an 
imagined  condition  of  perfect  practical  freedom,  these  may 
actually  increase  the  ease  and  readiness  of  movement  in  a  state 
where  obstructions  exist  on  every  hand.  They  argued  that  to 
limit  the  power  of  the  operative  to  sell  his  labor  must,  in  the 
end,  diminish  the  price  he  will  get  for  it,  not  seeing  that,  just 
as  a  crutch,  while  it  is  only  a  hindrance  and  a  burden  to  a 
sound  man,  may  keep  a  cripple  from  falling  to  the  ground, 
and  may  even  enable  him  slowly  and  feebly  to  walk,  so  a 
restriction  upon  contracts  for  labor  may  correspond  to  an 
infirmity  of  the  laboring  classes  under  certain  moral  and 
physical  conditions,  in  such  a  way  as  to  give  them  a  greater 
freedom  of  movement  than  they  would  have  without  it. 

I  said  that  it  was  unfortunate  for  political  economy  that  the 
professional  economists  of  England  opposed  the  factory  acts. 
This  had  the  effect  to  set  both  men  of  affairs  and  the  masses 
of  the  people  against  political  economy.  The  latter  were  alien- 
ated by  what  they  deemed  either  indifference  to  human  suffer- 
ing or  subserviency  to  the  interests  of  capital.  The  former 
saw  how  far  wrong  the  pursuit  of  this  so-called  science  could 
carry  intelligent  men,  on  a  practical  question.  To  them  this 
seemed  to  justify  the  contempt  so  generally  entertained  by 
men  of  affairs  for  "theorists."  The  cause  of  the  trouble  was 


FA  CTOR  Y  LA  W S.  383 

not  that  the  economists  were  theorists,  but  that  they  were  bad 
theorists.  Their  theories  did  not  cover  the  facts  of  the  case 
they  had  undertaken  to  deal  with.  The  economic  men*  they 
had  created  for  the  purposes  of  their  reasoning  were  no  more 
like  Englishmen  than  were  the  Houyhnhnms  of  Jonathan 
Swift. 

That  legislation  prohibiting  facto. y  labor  in  excess  of  what 
is  compatible  with  health  and  strength,  having  due  respect  to 
conditions  of  age  and  sex,  requiring  the  observance  of  sanitary 
principles,  and  protecting  working  people  against  abuses  as  to 
the  time  and  form  of  paying  wages*  may  be  practically  bene- 
ficial in  a  high  degree,  has  long  passed  beyond  controversy 
among  the  statesmen  of  nearly  all  civilized  countries.  If 
political  economy  objects  to  such  legislation,  so  much  the 
worse,  as  I  said  before,  for  political  economy.  But  I  hope 
there  has  been  shown  sufficient  reason  for  holding  that  no  such 
opposition  of  principle  exists  ;  and  that  both  the  largest  pro- 
duction and  the  most  equitable  distribution  of  wealth  may  be 
subserved  by  legal  regulations  wisely  conceived  to  meet  the 
grave  and  perhaps  incurable  infirmities  of  manufacturing 
populations. 

*  See  par.  21. 

t  A  long  series  of  parliamentary  battles  have  been  fought  over  the  ques" 
tion  of  Truck,  that  is,  the  payment  of  wages  in  commodities  instead  of 
the  money  of  the  realm.  By  the  act  of  1833,  this  practice  (except  in  the 
form  of  giving  "board"  as  a  part  of  wages)  was  prohibited  in  respect 
to  mining  and  manufacturing  industry  generally. 


384  POLITICAL  ECONOMY. 

VIII. 

THE    KNIGHTS    OF   LABOB. 

474.  Their  Relations  to  Trade  Unions. — The  public  mind 
of  England  and,  though  in  a  less  degree,  of  America,  has 
become  accustomed  to  the  idea  of  the  organization  of  bodies 
of  laborers,  for  mutual  support  and  for  the  promotion  of  their 
common  interests.  Beginning  fifty  or  sixty  years  ago,  the 
modern  trade  union  has  worked  its  way,  against  a  deep  preju- 
dice on  the  part  of  employers  and  of  economists,  alike,  to  very 
general  acceptance.  I  believe  it  to  be  true  that  the  best  pub- 
licists and  the  most  judicious  men  of  business  in  England  con- 
cede that  the  trade  unions  of  the  kingdom,  whatever  errors 
may  have  been  committed  in  the  course  of  their  develop- 
ment, now  fully  justify  themselves  by  their  acts.  In  the 
United  States,  I  have,  within  the  past  year  or  two,  been 
assured  by  three  prominent  railroad  presidents  that  they 
would  greatly  prefer  dealing  with  the  locomotive  engineers 
as  members  of  their  brotherhood,  to  dealing  with  them  indi- 
vidually ;  and  that  they  believed  the  influence  of  this  organi- 
zation to  be,  over  the  whole  country,  good.  Generally  speak- 
ing, however,  employers  among  us  are  less  fully  reconciled  to 
the  existence  and  activity  of  trade  unions  than  are  employers 
in  England,  probably  because  trade  unions,  with  us,  are  in  a 
stage  which  in  England  was  passed  almost  a  generation 
ago  ;  perhaps,  also,  because  such  associations  are  less  needed 
here  than  there. 

Within  the  past  three  or  four  years,  a  new  development  in 
the  organization  of  the  laboring  class  has  taken  place  in  the 
United  States,  in  the  form  of  a  general  confederation  of  trade 
unions,  re-enforced  by  large  numbers  of  persons  not  attached 
to  any  union,  under  the  title,  Knights  of  Labor.  The  essen- 
tial object  of  the  new  confederation  is  to  bring  to  bear  upon 
employers,  either  in  strikes  or  during  those  discussions,  regard- 
ing hours  of  work,  rates  of  wages,  etc.,  which  might  be  expected 
to  result  in  strikes,  a  pressure  more  severe,  more  unremitting, 


THE  KNIGHTS  OF  LABOR.  385 

more  far-reaching,  than  any  isolated  body  of  laborers  or  even 
the  most  formidable  trade  unions  could  hope  to  produce  and 
maintain.  By  drawing  the  whole  laboring  class*  of  the  coun- 
try into  one  mighty  confederation,  whose  trade  districts  and 
assembly  districts,  while  they  provide  for  the  local  needs,  or 
the  characteristic  trade  requirements,  of  their  several  constitu- 
encies, shall  yet  be  subject  to  the  legislation  of  a  general  labor 
congress  and  to  the  executive  authority  of  a  supreme  council, 
it  is  intended  to  inaugurate  a  new  era  in  the  so-called  "  conflict 
of  labor  and  capital." 

In  principle,  this  organization  does  not  differ  from  the 
smallest  trade  union.  The  distinction  between  the  two  is  one 
purely  of  degree.  In  practical  effect,  however,  the  Knights 
•of  Labor,  if  they  shall  accomplish  as  much  as  one-half  their 
declared  purposes,  will  produce  a  veritable  revolution  in  indus- 
try :  a  change,  no  longer  of  degree,  but  of  kind. 

The  difference  is  just  here.  Up  to  this  time  the  labor  organ- 
izations, the  trade  unions,  have,  on  the  whole,  not  done  more 
than  offset  the  great  economic  advantage  which  the  employ- 
ers of  labor  enjoy  in  the  increasing  struggle  over  the  product 
of  industry.  When  I  say  the  labor  organizations  have  not 
done  more  than  this,  I  do  not  overlook  the  fact  that  they  have, 
at  times,  done  a  great  deal  which  was  aside  from  this  ;  have 
wrought  much  mischief,  in  bad  blood  or  under  the  guidance  of 
demagogues,  through  acts  which  were  reprehended  not  less  by 
their  own  wiser  members  than  by  the  general  sense  of  the 
community.  What  I  mean  to  say  is,  that,  irrespective  ofrsucli 
sporadic  acts  of  folly,  the  power  given  to  the  working  classes 
by  their  organizations,  added  to  the  power  which  those  classes 
would  have  wielded,  if  unorganized,  has  not  been  more  than 
•enough  to  secure  the  full,  attentive  and  respectful  consider- 
ation of  their  interests  and  claims.  It  has  not  been  enough, 
speaking  broadly,  to  overbear  the  master's  rightful  authority, 


*  In  fact,  the  Knights  of  Labor,  at  their  maximum,  included  about  ten 
per  cent,  of  the  laboring  population,  agricultural  or  mechanical.  Within 
the  large  factory  industries,  however,  the  proportion  was  very  much 
greater,  the  "  Knights"  having  almost  complete  control  of  many  trades. 


386  POLITICAL  ECONOMY. 

to  interfere  with  his  necessary  control  of  his  business,  to  ren- 
der it  unsafe  for  him  to  undertake  contracts,  much  less  to 
transfer  the  initiative  in  production  from  him  to  his 
workmen. 

475.  The  Laborer  must  look  out  for  his  own  Interest. — 
The  reader  who  has  carefully  followed  the  course  of  discussion 
in  this  treatise  will  not  have  failed  to  apprehend  the  opinion 
of  the  writer,  not  only  that  an  active  and  even  eager  pursuit 
of  their  own  interests  by  the  working  classes  is  a  condition  of 
their    realizing   the   utmost   economic    good    that  might  be 
brought  to  them,  but  that  it  is,  not  less,  for  the  interest,  the 
particular,  selfish  interest  of  the  employing  class  themselves, 
that  they  should  have  to  do  with  men  who  are  acute  and  alert 
in  searching  out  opportunities  for  the  improvement  of  their 
own    condition,  with  men  who  are    bold   and   persistent   in 
following  up  every  possible  advantage.     I  believe  that  the 
industrial  republic  has  as  little  need  as  has  the  political  republic, 
of  citizens  who  have  no  opinions  for  themselves  as  to  their  right* 
and  interests,  but  thankfully  receive  whatever,  in  the  time  and 
place,  may  be  offered  them.     I  believe  it  is  eminently  for  the 
prosperity  and  growth  of  the  community  that  each  and  every 
member,  whatever  his  place  in  the   industrial    order,  should 
strongly  desire  to  improve  his  condition,  and  should  seek  to  do- 
so  by  all  means  which  are  compatible  with  industrial  peace. 
I  have  even,  under  a  preceding  title  (Strikes),  expressed  the 
opinion  that,  on  rare  occasions  and  for  manifestly  good  reasons^ 
industrial  warfare  itself  may  result  in  the  better  adjustment 
of  economic  relations. 

476.  The   Balance  of  Power   between  Employers    and 
Employed — The  accomplishment  of  the  avowed  purposes  of 
the  Knights  of  Labor,  however,  would  lead  to  the    complete 
subjugation  and  subjection  of  the  employing  class,  a  result, 
which,  in  my  view,  would  be  fraught  with  the  most  mischiev- 
ous consequences.     Up  to  this  time  the  trade  unions  have,  in 
general,  brought  to  bear  a  sufficient  pressure  to  make  employ- 
ers carefully  considerate  of  the  wishes  and  interests  of  their 
laborers,  anxious  to  avoid  all  causes  of  offense,  willing  to  con- 
cede whatever  they  possibly  can.     This  is  as  it  should  be. 


THE  KNIGHTS  OF  LABOR.  387 

No  good  comes  from  the  exercise  of  unchecked  and  irrespon- 
sible power  in  industry,  any  more  than  in  government. 

On  the  other  hand,  the  trade  unions,  up  to  this  time,  while 
they  have  been  able  to  make  themselves  heard  and  considered, 
while  they  have  had  all  the  power  necessary  to  cause  the 
employer  to  be  desirous  and  even  anxious  to  concede  every 
reasonable  demand,  have  yet,  in  the  main,  shown  a  sense  of 
responsibility  for  the  fairness  and  reasonableness  of  their 
demands.  They  have  known  at  the  outset,  or  have  learned 
as  the  result  of  unsuccessful  contests,  that  there  is  a  limit  to 
their  power  ;  that,  in  making  excessive  and  exorbitant  claims, 
they  are  likely  to  be  beaten ;  and  that  every  defeat  on  such 
an  issue  weakens  themselves  and  strengthens  their  antagonists 
for  any  future  contest.  In  a  word,  while,  under  the  condi- 
tions which  subsisted  until  within  the  last  three  or  four  years, 
many  employers  were,  by  force  of  temperament,  unreasonably 
arbitrary,  and  large  bodies  of  laborers  were,  on  their  side,  often 
unreasonably  exacting,  something  approaching  an  equilibrium 
had  been  reached  between  the  powers  of  the  two  parties, 
securing  industrial  peace  to  as  great  a  degree  as  might  fairly 
be  expected  under  the  rightful  and  desirable  ambition  and 
self-assertion,  the  fortunately  growing  ambition  and  self- 
assertion,  of  the  working  classes. 

477.  The  Subjugation  of  the  Employer.— On  the  other 
hand,  such  a  confederation  of  labor  as  is  now  proposed  and 
attempted  would  utterly  destroy  the  balance  of  industrial 
power,  leaving  the  employer  only  the  choice  between  conced- 
ing any  and  all  demands,  however  unreasonable,  or  ceasing  to 
produce.  And  this  object  is  distinctly  avowed  by  the  leaders 
in  this  movement,  some  of  whom  have  carried  their  scheme 
out  to  its  full  logical  consequences,  declaring  it  to  be  their 
purpose  to  bring  about  a  state  of  things,  in  which,  while  the 
employer  shall  still  occupy  his  formal  attitude  in  production, 
he  shall  be,  in  effect,  only  the  paid,  doubtless  the  well-paid, 
agent  of  what  they  are  pleased  to  call  "the  productive 
classes."  The  employer  is  still  to  remain  the  superintendent  of 
the  industrial  operations  ;  he  is  still  to  risk  his  own  capital 
and  the  borrowed  capital  for  which  he  has  made  himself 


388  POLITICAL  ECONOMY. 

responsible  ;  he  is  still  to  exert  his  technical,  administrative 
and  financial  skill  in  the  conduct  of  the  business  over  which 
he  is  placed  ;  he  is  still  to  exercise  authority,  so  far  as 
permitted,  over  the  personnel  of  the  works  or  factory.  But 
the  real  initiative  in  production  is  to  rest,  not  with  him, 
but  with  the  council  or  committee  or  executive  officer,  not, 
indeed,  of  his  own  laborers,  but  of  those  of  the  whole  country  ; 
he  is  to  engage  no  one  and  to  discharge  no  one,  without  con- 
sent ;  others  are  to  decide  for  him  all  questions  relating  to  the 
quality  of  work  or  the  conduct  of  his  workmen  ;  the  hours  and 
general  conditions  of  labor,  the  rates  of  wages  and  the  times 
and  modes  of  payment,  are  to  be  determined  by  the  general 
parliament  of  labor  or  under  its  authority. 

Beyond  this,  I  do  not  understand  that  it  is  the  present  pur- 
pose of  the  promoters  of  this  movement  to  go.  For  example, 
if  I  rightly  understand  the  matter,  the  employer,  having  pro- 
duced goods  under  the  conditions  recited,  will  be  left  free  to 
dispose  of  them  at  his  pleasure,  selling  them  to  whom  he  will, 
at  such  prices  and  on  such  terms  of  payment  as  he  choose, 
unless,  indeed,  that  be  prevented  by  some  "  boycott,"  *  placed 
upon  some  person  or  class  of  persons,  or  upon  some  kind  of 
goods,  or  upon  the  product  of  certain  machines,  under  author- 
ity of  the  parliament  of  labor  or  of  its  executive  officers,  for 
some  industrial,  political,  social  or  personal  reason. 

478.  Difficulties  Attendant  on  the  Scheme.— Of  course,  no 
"  long  headed  "  man,  and  there  are  many  such  among  the  pro- 
moters of  this  movement,  expects  that  any  one  of  the  present 
employers  of  labpr  will  find  the  conditions  thus  imposed  agree- 
able,or  will  submit  to  them  if  he  has  any  choice,  short  of  leav- 
ing business.  They  anticipate  that  many  employers  will  refuse 
to  submit  to  such  conditions  and  will  relinquish  production, 


*  The  designation  of  this  new  weapon  of  industrial  and  social  warfare 
is  derived  from  an  Irish  gentleman,  one  Captain  Boycott,  against  whom 
it  was,  a  few  years  ago,  so  conspicuously  employed  by  his  hostile  tenants 
as  to  cause  his  name  to  be  permanently  affixed  thereto.  To  boycott  is 
simply  to  place  under  a  ban.  No  person  who  respects  the  authority 
which  lays  the  boycott  will  deal  with  a  person  thus  placed  under  the  ban, 
or  with  any  person  who  does  deal  with  him. 


THE  KNIGHTS  OF  LABOR.  389 

perhaps  with  consequences  immediately  injurious  to  their  labor- 
ers and  to  the  community.  They  anticipate  that  others  will 
resist  violently,  throwing  their  whole  energies  and  fortunes  into 
the  contest,  fighting  with  fury,  as  if  for  life,  and  only  ceasing 
their  struggles  when  bound  hand  and  foot.  But  they  expect  that 
still  others  will  submit,  more  or  less  unwillingly,  to  the  terms 
imposed  upon  them,  and  will  consent  to  carry  on  business  under 
the  new  regime.  The  next  generation  of  employers  they  look  to 
see  made  up  of  men  bred  and  trained  under  the  new  conditions, 
men  who,  born  into  such  a  state  of  things,  and  not  knowing 
any  other,  except  historically,  as  belonging  to  a  bad  past  age, 
when  the  rights  of  labor  were  not  respected,  will  accept  the 
situation  as  cheerfully  as  the  Frenchman  of  to-day  accepts  the 
great  Revolution.  Such  men,  it  is  believed,  will  be  both  glad 
and  proud  to  wield  the  limited,  delegated  powers  then  pertain- 
ing to  the  position  of  the  employer  of  labor;  and  will,  in  good 
faith  and  good  feeling,  execute  the  laws  and  decrees  of  the 
parliament  of  labor  or  of  its  supreme  or  local  council  or  of  any 
committee  thereto  authorized. 

Probably,  also,  none  of  the  more  clear  sighted  of  the  pro- 
moters of  this  movement  anticipate  that  the  legislation  of 
their  congress  or  the  decrees  of  their  standing  councils  or  the 
acts  of  their  executive  officers  will,  at  first  or  for  a  long  time, 
be  free  from  much  that  is  visionary  and  unpractical,  or  even 
from  the  influence  of  personal  piques,  jealousies  and  animosi- 
ties. They  doubtless  anticipate  that  much  that  is  futile  will  be 
attempted,  and  .that  much  that  is  mischievous  will  be  accom- 
plished. No  intelligent  person  could  possibly  believe  that  such 
tremendous  and  far-reaching  powers  could  be  placed,  all  at 
once,  in  the  hands  of  a  few  men  without  grave  abuses  being  gen- 
erated; or  that  a  machine  so  gigantic  could  be  set  up  and  put  to 
working  without  much  jarring  and  friction,  and  an  occasional 
accident,  even  if  a  permanent  breaking-down  be  avoided. 

The  men  who  are  concerned  in  this  movement  are  shrewd 
enough  to  see  that  the  sense  of  the  entire  helplessness  of  the 
employing  class  must  inevitably  affect,  and  affect  profoundly, 
the  judgment  and  the  will  of  the  soundest,  wisest,  and  most 
fair-minded  representatives  whom  the  body  of  laborers 


390  POLITICAL   ECONOMY. 

could  select,  rendering  them  less  sound,  less  wise  and  less  fair- 
minded  than  they  would  be  in  dealing  with  a  body  of  employ- 
ers who  were  not  helpless,  but  had  the  power  to  resist  and  to 
strike  back,  if  crowded  too  far.  These  men,  also,  are  shrewd 
enough  to  see  that  there  is  great  likelihood  that  the  sense  of 
the  helplessness  of  the  employing  class  will  so  operate,  at  least 
in  the  first  instance,  upon  the  minds  of  the  body  of  laborers 
as  to  cause  them  to  select,  as  their  representatives,  not  the 
soundest,  wisest  and  most  fair-minded  of  their  class,  but  those 
who  are  extreme,  arbitrary  and  arrogant  in  character  and  in 
manners,  and  who  will  fast  become  more  and  more  so,  through 
the  exercise  of  such  tremendous  powers. 

All  this,  any  clear-minded  person  must  see,  on  the  first  con- 
templation of  such  a  scheme  ;  all  this,  doubtless,  the  leaders  of 
the  Knights  of  Labor  fully  realize  ;  but  were  these  probabili- 
ties presented  as  an  objection  to  that  scheme,  they  would  ans- 
wer, that  the  education  of  the  mass  of  laborers,  to  use,  without 
abuse,  such  and  so  great  industrial  powers,  is,  in  their  belief, 
practicable,  in  time,  in  such  time  as  would  be  taken  for  accom- 
plishing any  other  great  moral  and  intellectual  advance;  and 
that  such  an  education  and  training  of  the  mass  of  laborers 
would  itself  be  a  social  and  political  gain,  far  transcending  in 
value  even  the  industrial  blessings  which  the  most  sanguine 
could  look  for  from  the  fullest  success  of  the  proposed  scheme 
of  democracy  in  industry. 

470.  Another  View  of  the  Knights  of  Labor. — I  have 
sought  to  state,  fully  and  fairly,  what  I  understand  to  be  the 
purpose  of  the  leading  promoters  of  the  organization  known 
as  the  Knights  of  Labor.  Probably  many,  even  among  the 
leaders  in  this  movement,  probably  most  of  the  members  of 
the  organization,  regard  it  as  an  effort  to  give  encouragement 
and  moral  support  to  the  constituent  trade  unions  and  to 
bodies  of  labor  heretofore  isolated  ;  as  a  means  of  stimulating 
the  self-respect  and  self-assertion  of  the  laboring  class,  of 
promoting  their  mutual  acquaintance,  of  strengthening  the 
feeling  of  a  common  interest  among  them,  rather  than  as  a 
serious  attempt  to  reverse  the  relations  heretofore  subsisting 
between  employer  and  employed  and  to  transfer  the  initiative 


CAN  PROFITS  BE  CONFISCATED?  391 

in  production  and  the  control  of  industry  from  the  former 
to  the  latter  class.  In  this  narrower  sphere,  it  is  conceiv- 
able that  an  organization  like  the  Knights  of  Labor  might 
become  a  great  educational  force  ;  a  useful  agency  for  direct- 
ing the  efforts  of  its  members  toward  the  improvement  of 
their  condition  ;  a  source  of  much  inspiration,  through  the 
deliberations  and  debates  of  earnest  men,  representing  the 
better  sense  and  higher  purposes  of  vast  bodies  of  laborers,  in 
the  main,  right-minded,  honest  and  patriotic.  Indeed,  it  is 
not  improbable  that,  should  the  confederation  relinquish  its 
larger  designs,  it  will  assume  this  less  ambitious  but  more 
useful  function.  How  fully  and  how  long  ^it  would,  in  such 
a  capacity,  be  supported  by  the  efforts  and  contributions  of 
its  present  members,  we  need  not  consider. 

48O.  Can  Profits  be  Confiscated  ?— Reverting  to  the  larger 
scheme,  openly  avowed  and  vigorously  advocated,  of  those 
who  would  make  the  Knights  of  Labor  all  that  has  been 
described,  let  us  ask,  how  far  the  object  aimed  at  is  desirable  ; 
how  far  it  is,  in  itself,  practicable  ;  how  far  such  an  organiza- 
tion is  suited  to  accomplish  that  object. 

In  the  first  place,  can  one  be  mistaken  in  deeming  it  the  main 
object  of  this  industrial  enterprise  to  secure  to  the  laboring 
•class  the  benefit  of  a  part,  perhaps  the  greater  part,  of  the 
profits  now  realized  by  the  body  of  employers,  which  the 
laborers  regard  as  excessive  ?  If  this  be,  indeed,  the  main 
object  of  the  association,  the  aim  is,  if  I  have  rightly  indicated 
the  origin  and  measure  of  business  profits,  a  mistaken  one. 
Profits  are  not  obtained  by  deduction  from  wages  ;  they  are 
purely  the  creation  of  the  employers  themselves.  The  mass 
of  profits  represents  the  wealth  produced  by  able,  skillful, 
resolute  and  far-seeing  men  of  business,  over  and  above  that 
which  is  produced,  with  the  same  amount  of  labor  power  and 
capital  power,  by  employers  who  fail  in  one  or  more  of  the 
qualities  necessary  to  success. 

If  this  view  of  the  source  of  the  employer's  gains  be  just, 
it  is  not  possible  to  wrest  profits  to  the  benefit  of  the 
body  of  laborers.  The  employers  may,  indeed,  be  prevented 
from  realizing  them,  by  strikes  and  industrial  disturbances  ; 


392  POLITICAL  ECONOMY. 

but  no  part  of  the  profits  which  .they  would  otherwise  have 
made,  will,  for  that  reason,  go  to  any  other  class  in  the  com- 
munity. On  the  contrary,  the  community  as  a  whole,  and 
the  working  classes  in  especial,  will  be  worse  off  for  the 
impairment  or  destruction  of  the  employer's  interest  in  pro- 
duction^ i.  e.y  his  profits. 

Are  there,  then,  no  means  by  which  the  working  class  can 
operate,  at  once  to  reduce  the  amount  going  to  the  employing 
class  as  profits,  and  in  the  same  degree  to  enhance  their  own 
wages  ?  I  answer,  yes :  there  are  such  means.  These  have 
been  pointed  out  in  paragraphs  310  to  314.  In  just  so  far  a& 
the  laboring  classes,  by  their  influence  upon  legislation  or 
administration,  or  by  their  own  direct  action,  contribute 
towards  elevating  the  standard  of  the  employing  class,  thus 
raising  the  lower  limit  of  production  in  this  respect,  in  just  so 
far  will  they  increase,  not  only  the  relative  share,  but  the 
positive  amount,  coming  to  them  in  wages.  It  does  not  need 
to  be  said  that  treating  employers  as  public  enemies,  levying 
industrial  warfare  upon  them,  concerting  schemes  to  harass 
them  and  take  them  at  every  accidental  disadvantage,  render- 
ing it  unsafe  for  them  to  undertake  contracts  on  a  large 
scale  and  over  long  periods  of  time,  and  subjecting  them  to 
insults  and  indignities,  as  so  many  labor  leaders  seem  to  think 
it  a  matter  of  class  duty  to  do,  is  not  a  way  to  effect  the 
desired  result.  Such  courses  must  not  only  reduce  the  average 
standard  of  business  ability,  by  driving  out  the  ablest  men, 
but  must  introduce  into  the  employment  of  labor  whole 
classes  of  persons  of  lower  and  still  lower  grades  of  efficiency, 
to  the  great  and  lasting  injury  of  the  community  and  of  the 
working  classes,  first  of  all,  last  of  all,  most  of  all. 

481.  Will  the  Machine  Work?— So  much  for  what  I 
understand  to  be  the  main  object  of  this  industrial  movement. 
A  few  words  only  will  be  needed  regarding  the  suitability  of 
the  agencies  to  be  employed. 

One  might  cherish  grave  doubts  regarding  the  practicability 
of  breeding  a  race  of  conductors  of  business,  who,  possessing 
energy,  intelligence,  forethought  and  resolution,  will  rather 
like  to  execute  the  legislation  of  a  parliament  of  labor  ;  will 


WILL    THE  MACHINE    WORK?  395 

cheerfully  accept  the  condition  of  being  ordered  about  by  a 
committee  of  their  own  hands,  or  of  a  local  council  ;  will  be 
unhesitatingly  ready  to  embark  capital  in  enterprises  over 
which  they  have  practically  no  control.  One  might  entertain 
grave  doubts  as  to  the  capability  of  the  working  classes,  after 
any  course  of  education,  however  long,  painful  and  costly, 
maintaining  a  parliament  of  labor  which  shall  be  competent 
to  deal  with  concerns  a  hundred  times  as  large,  important  and 
difficult  as  those  which  come  before  the  American  Congress, 
without  making  a  mess  of  it,  compared  with  which  the  muddle 
into  which  Congress  manages  to  get  our  industry  and 
finances  would  be  clearness  and  order  and  system  and  light. 
But  it  is  probably  not  necessary  to  go  so  far  into  the  matter 
as  to  inquire  what  might  come  to  pass  should  the  Knights  of 
Labor  pursue  their  designs  through  a  considerable  period  of 
time.  It  is  in  the  highest  degree  improbable  that  the  organ- 
ization itself  could  maintain  activity  long  on  such  a  scale  as 
has  been  projected. 

The  very  vastness  of  the  scheme  foredooms  it  to  failure. 
The  attempt  to  embrace  so  much  under  a  single  rule  ;  to  legis- 
late in  detail  for  so  many  conflicting  interests  ;  to  regulate, 
from  a  central  point,  conditions  of  life  and  labor  so  widely 
diverse  as  those  of  city  and  of  country,  of  east  and  of  west,  of 
agriculturist  and  of  artisan,  of  common  and  of  skilled  labor, 
of  the  producer  of  materials  and  of  him  who  uses  those 
materials  in  the  production  of  still  higher  classes  of  com- 
modities, must  result  in  failure.  The  restiveness  shown  by 
many  trade  unions,  the  open  revolt  of  some,  the  early  estab- 
lishment of  a  rival  Confederation,  already  intimate  the  essen- 
tial weakness  of  the  scheme,  at  least  if  it  is  to  be  administered 
in  the  masterful  spirit  of  the  last  two  years. 

482.  Is  the  Scheme  "  American  "  ?— Nor  do  I  believe  that, 
if  it  were  left  to  the  suffrage  of  the  laboring  classes  in  America 
themselves,  one  in  twenty  of  those  who  were  born  upon  the  soil 
would  vote  to  bring  about  such  a  subjection  of  the  employing 
class  to  the  will  of  their  workmen  or  to  a  general  parliament 
of  labor.  The  American  well  knows  that  there  is  neither 
hardship  nor  indignity  in  working  for  another  man,  in  his 


394  POLITICAL  ECONOMY. 

shop,  at  his  task,  with  his  tools,  on  his  terms.  He  knows  that 
industry,  to  be  successfully  conducted,  must  be  controlled  by 
its  responsible  head.  He  sees  all  around  him  men  who  have 
risen  from  the  ranks  of  labor  to  become  the  conductors  of 
business,  no  one  hindering  them,  all  applauding  their  efforts 
and  rejoicing  in  their  success.  He  knows  that  for  himself 
and  his  children  the  way  is  open  clear  up  to  the  top.  The 
American  workingman  can  be  reasoned  with,  and  that  not  on 
a  low  plane  only  ;  he  is  capable  of  understanding  and  appre- 
ciating almost  any  consideration  relating  to  the  market ;  his 
spirit  is  that  of  civility,  reciprocity  and  fair  play  ;  he  cordially 
and  intelligently  accepts,  in  its  full  economic  bearings,  the 
maxim,  "  live  and  let  live."  Had  it  been  left  to  our  native 
population  alone,  not  one  of  those  violent  and  reckless  attacks 
upon  production  and  transportation,  which  have,  within  the 
past  two  or  three  years,  shocked  the  whole  industrial  system 
and  have  come  near  to  produce  a  general  crisis  of  trade,  would 
ever  have  taken  place. 

IX. 

ATTACKS    ON    THE    DOCTRINE    OF    RENT. 

483.  Bastiat. — A  doctrine  of  such  far-reaching  consequences 
as  Ricardo's  doctrine  of  Rent  has  not  been  allowed  to  stand 
without  suffering  many  and  vehement  assaults.  The  French 
Bastiat  has,  in  his  eloquent  and  witty  work,  "  The  Harmonies 
of  Political  Economy,"  undertaken  to  demonstrate  that  Rent, 
proper,  economic  rent,  does  not  exist ;  that  it  is  purely  a  fiction 
jointly  maintained  by  the  economists  and  the  communists  ;  * 
that  all  which  the  landlord  receives  for  the  use  of  his  land  is 
nothing  but  the  proper  remuneration  for  the  labor  and  capital 
expended  in  inclosing  the  land,  providing  means  of  access, 
draining,  manuring  and  otherwise  improving  the  soil,  erecting 
buildings  for  sheltering  the  produce,  housing  the  laborers,  etc. 
Inasmuch  as  Bastiat's  objections  to  Ricardo's  doctrine  were  far 

*  In  stigmatizing  this  doctrine  he  continually  joins  together  the  names 
of  "  Ricardo  and  Proudhon." 


CAREY  ON  RICARDO.  395 

more  strongly  and  clearly  stated  by  the  late  Mr.  Henry  C 
Carey,  of  Philadelphia,  I  pass  at  once  to  the  consideration  of 
the  views  of  the  latter. 

484.  Carey.— Mr.  Carey's  attack  is  twofold.  His  first 
argument  is  founded  on  a  "  comparison  of  the  cost  and  value  of 
existing  landed  capital."  To  use  his  own  phraseology,  «  There 
is  not  throughout  the  United  States,  a  county,  township,  town, 
or  city,  that  would  sell  for  cost ;  or  one  whose  rents  are  equal  to 
the  interest  upon  the  labor  and  capital  expended."*  And  Mr. 
Carey  draws  what  he  regards  as  the  logica.1  inference  from  this 
alleged  fact :  "  If  we  show  that  the  land  heretofore  appro- 
priated is  not  only  not  worth  as  much  labor  as  it  has  cost  to 
produce  it  in  its  present  condition,  but  that  it  could  not  be 
reproduced  by  the  labor  that  its  present  value  would  purchase, 
it  will  be  obvious  to  the  reader  that  its  whole,  value  is  due  to 
that  which  has  been  applied  to  its  improvement,  "f 

Now,  it  appears  to  me  J  not  only  that  this  is  not  "  obvious," 
but  that  something  very  like  an  Irish  bull  is  to  be  found  here. 
The  trouble  with  this  argument  is  its  superabundance  of  proof. 
The  effect  is  much  the  same  as  that  which  results  from  a  super- 
abundance of  powder  in  charging  a  gun. 

Had  Mr.  Carey  been  able  to  show  that,  in  any  case  taken,  a 
Bounty,  township,  town,  or  city  was  worth  exactly  as  much  in 
labor  as  it  had  cost,  the  coincidence  of  amounts  would  at  least 
have  suggested,  if  it  did  not  create  a  proper  presumption  to 
that  effect,  that  the  labor  expended  was  the  cause  of  the  value 
existing  ;  but  when  Ricardo's  critic  asserts  that  any  farm  and 
any  collection  of  farms,  has  cost  more,  often  far  more,  than  it 
is  worth,  he  furnishes  the  means  for  his  own  refutation. 

Suppose  the  present  value  of  a  piece  of  land  to  be  repre- 
sented by  100  units,  while  the  value  of  the  labor  it  has  cost  to 
*l produce"  the  farms  found  thereon,  is  represented  by  125. 
Now,  says  Mr.  Carey,  inasmuch  as  the  land  is  not  at  present 
•worth  more  than  100,  while  the  labor  invested  in  it  was  worth 

*  Carey  :  The  Past,  Present  and  Future,  p.  60. 
f  Carey  :  Political  Economy,  vol.  I.,  p.  102. 

\  This  discussion  of  Mr.  Carey's  propositions  is  abridged  from  mj 
•work,  "  Land  and  Its  Rent,"  published  in  1883. 


396  POLITICAL  ECONOMY. 

125,  it  is  clear  that  nothing  but  the  labor  has  entered  to  give 
value  to  the  land  ! 

But  how  so  ?  What  has  become  of  the  25  which  was  in 
excess  of  the  100  ?  Lost,  says  Mr.  Carey,  since,  "  as  labor  is. 
improved  in  its  quality  by  the  aid  of  improved  instruments, 
all  previously  accumulated  capital  tends  to  fall  below  its  cost 
in  labor."* 

Ah  !  but  if  that  25  can  be  lost  and  has  been  lost,  how  can 
you  show  that  another  25  has  not  been  lost,  and  still  another 
25,  through  the  operation  of  the  same  cause  ?  How  can  you 
prove  that  proper  economic  rent  does  not  enter  ?  How,  indeed,, 
can  you  prove  that  the  present  value  of  the  land  is  due,  in  any 
part  whatever,  to  the  labor  expended  in  the  past  ? 

John  Smith's  barn  has  been  broken  into,  over  night,  by  a 
burglar  who  sawed  a  hole  through  the  door  to  effect  his  entrance. 
Mr.  Carey,  in  the  interest  of  justice,  appears  next  morning 
among  the  excited  throng  of  neighbors,  and  produces  a  board 
taken  from  James  Brown's  woodshed,  which,  though  not  cor- 
responding to  the  guilty  hole  in  size  or  shape,  is  yet  large 
enough,  as  he  explains,  to  allow  just  such  a  piece  to  be  cut  out 
of  it,  thus  conclusively  proving  James  Brown  to  have  been 
the  robber  of  John  Smith's  barn  ! 

485 .  How  the  Value  of  Agricultural  Improvements  should 
be  Estimated. — An  argument  that  breaks  down  thus,  under 
the  slightest  strain,  can  not  be  worth  further  notice  on  its  own 
account ;  yet  we  may  find  matter  of  not  a  little  economic  inter- 
est in  following  out  the  question  here  raised,  as  to  the  relation 
between  what  Mr.  Carey  calls  the  cost  of  producing  farms  and 
the  value  of  farms  when  "  produced." 

First.  To  begin  with,  all  statements  regarding  the  amount  so 
invested  in  any  country  or  district  are  based  on  comparatively 
little  information.  The  data  are  few  and  meager,  even  for 
making  estimates.  Accomplished  statisticians,  accustomed 
to  deal  with  computations  relating  to  agriculture,  like 
Mr.  Robert  Giffen,  Professor  Thorold  Rogers,  or  Sir 
James  Caird,  would  scarcely  presume  to  claim  approximate 
accuracy  for  any  estimates  they  might  make  regarding  the 

*  Political  Economy,  vol.  I.,  p.  35. 


CAREY  ON  RICA  I? DO.  397 

amount  of  labor  involved  in  bringing  even  a  limited  agricul- 
tural region  into  its  present  state  of  productiveness. 

Second.  Again,  wholly  in  addition  to  the  difficulty  encoun- 
tered in  estimating  the  amount  of  labor  involved,  would  be  the 
difficulty  of  computing  the  money  value  of  that  labor.  While 
some  great  works  of  improvement  are  effected  by  bodies  of 
hired  laborers  working  through  the  year  or  through  the  agri- 
cultural season,  most  farm  improvements  are  effected  in  the  off 
season,  when  the  wages  of  hired  labor  are  very  low, — perhaps 
only  one-half  what  they  would  be  at  another  period  of  the 
year  ;  and  probably  the  greater  part  are  effected  by  the  labor 
of  the  owner  or  occupier  of  the  land  and  his  family,  in  frag- 
ments of  the  day  which  would  not  otherwise  be  utilized,  or  in 
portions  of  the  year  when  little  or  nothing  of  the  current  work 
of  the  farm  can  be  done. 

Third.  The  element  of  interest  can  properly  be  introduced 
into  such  computations  only  in  respect  to  a  very  small  propor- 
tion of  agricultural  investments. 

In  general,  where  capital  is  applied,  it  is  in  the  expectation 
of  an  immediate  improvement  of  the  productive  power  of  the 
land,  the  annual  increase  of  the  produce  being  relied  upon  to 
furnish  at  least  the  annual  interest  upon  the  investment,  so 
that,  speaking  broadly,  in  any  comparison  between  the  cost 
and  the  value  of  landed  property,  only  the  first  cost  of  the 
improvements  should  be  set  against  the  ultimate  value. 

There  are  cases,  of  course,  where  capital  is  applied  to  the 
land  in  the  view  alone  of  a  distant  increase  of  value.  Here, 
within  moderate  limits  of  time,  the  inclusion  of  interest  is  not 
unreasonable.  But  even  here,  and  even  within  comparatively 
brief  periods,  the  application  of  the  principle  of  geometric  pro- 
gression, in  the  form  of  compound  interest,  is  of  very  doubtful 
propriety.  Geometrical  increase  is  rarely  attained  and  never 
long  maintained  in  things  human.  Contemplating  an  actual 
instance  of  such  increase  within  the  field  of  industry,  the  most 
unreasonable  expectation  which  can  be  formed  concerning  it, 
is  that  it  will  continue.  That  it  should  continue  long,  is  not 
so  much  unlikely  as  impossible. 

Sir  Archibald  Alison,  in  his  discussion  of  the  British  Sink- 


398  POLITICAL   ECONOMY. 

ing  Fund,  states  that  "  a  penny  laid  out  at  compound  interest 
at  the  birth  of  our  Saviour  would  in  the  year  1775  have 
amounted  to  a  solid  mass  of  gold  eighteen  hundred  times  the 
whole  weight  of  the  globe."  So,  doubtless,  it  might  be  shown 
that  the  value  of  Adam's  first  day's  work  in  the  Garden,  properly 
compounded  during  six  thousand  years,  would  amount  to 
more  than  the  present  value  of  all  the  lands  of  the  world,  and 
consequently  that  all  the  work  that  has  been  done  since,  in 
bringing  the  soil  under  cultivation,  has  been  thrown  away  ! 

The  incredibility  of  geometric  increase  through  any  con- 
siderable period  of  time  can  not  be  too  strongly  impressed  upon 
the  student  of  economics.  The  produce  of  a  single  acre  of 
wheat,  sown  over  and  over  for  fourteen  years,  would  cover 
all  the  solid  land  on  this  planet.  The  spawn  of  certain  fish 
would  suffice  in  even  fewer  years,  if  reproduction  went  on  in 
geometrical  progression,  to  fill  to  the  brim  the  basin  of 
every  pond,  lake,  river,  sea,  and  ocean. 

Hence  we  see  the  utter  inconsequence  of  computations  into 
which  compound  interest  is  allowed  to  enter,  except  in  strict 
subordination  to  common-sense.  Probably  there  is  no  way 
in  which  a  man  can  so  quickly  and  so  conclusively  show  him- 
self unfit  to  be  listened  to,  as  by  appealing  to  geometrical 
progression  for  the  proof  of  an  economic  or  social  theory. 

Fourth.  But  the  consideration  of  greatest  importance  in  com- 
puting the  cost  of  "  producing  "  farms,  is  that,  in  general, 
agricultural  improvements  are  compensated,  and  are  expected 
to  be  compensated,  upon  the  principle  of  those  annuities  in 
which  a  certain  number  of  annual  payments  both  yield  due 
interest  on  the  purchase  money  and  extinguish  the  capital 
itself,  as  when  a  man  for  $1,000  (on  which  the  normal  interest 
would  be  $50  or  $60)  purchases  the  right  to  receive  $120  a 
year  for  a  certain  term,  with  no  claim  on  the  principal  there- 
after. 

Now,  is  this  so,  or  is  it  not  ?  Let  us  satisfy  our  minds  on 
this  point ;  for  if  the  proposition  just  now  stated  is  correct,  it 
disposes  effectually  of  the  argument  against  the  economic 
doctrine  of  rent  derived  from  the  fact  of  expenditures  in 
"  producing  "  farms. 


CAREY'S  HISTORICAL  ARGUMENT.  399 

That  this  proposition  is  correct,  is,  I  think,  proved  con- 
clusively by  the  fact,  abundantly  established  by  English 
experience,  that  there  are  few  classes  of  improvements  known  to 
agriculture  which  a  tenant  for  33  years  will  not  make  at  his 
own  expense,  notwithstanding  the  certainty  that  he  will  cease 
to  enjoy  the  benefit  of  them  at  the  expiry  of  his  lease. 

Do  not  the  several  considerations  adduced,  and  especially 
the  last,  take  away  all  the  force  of  this  labored  argument 
against  the  doctrine  of  rent  ? 

486.  Mr.  Carey's  Historical  Argument.— But  Mr.  Carey 
was  not  satisfied  with  one  refutation  of  Ricardo's  law.  He 
attempted  and,  to  the  satisfaction  of  his  disciples,  achieved, 
a  second  demonstration  of  its  falsity.  That  this  subsidiary 
argument  against  the  doctrine  of  rent  should  have  been  for  a 
moment  admitted,  affords  a  striking  proof  of  the  weakness 
and  vagueness  with  which  economic  questions,  especially  those 
affecting  the  land,  have  been  discussed. 

"  It  will,"  Mr.  Carey  says,*  "  be  perceived  that  the  whole  sys- 
tem (of  Ricardo)  is  based  upon  the  assertion  of  the  existence 
of  a  single  fact,  namely,  that,  in  the  commencement  of  culti- 
vation, when  population  is  small  and  land  consequently 
abundant,  the  soils  capable  of  yielding  the  largest  return  to 
any  given  quantity  of  labor  alone  are  cultivated. 

"  That  fact  exists,  or  it  does  not.  If  it  has  no  existence,  the 
system  falls  to  the  ground.  That  it  does  not  exist,  that  it  never 
has  existed  in  any  country  whatsoever,  and  that  it  is  contrary 
to  the  nature  of  things  that  it  should  have  existed,  or  can  exist, 
ice  propose  now  to  show. 

"  We  shall  commence,"  he  says,  "  our  examination  with  the 
United  States.  Their  first  settlement  is  recent;  and,  the  work 
being  still  in  progress,  we  can  readily  trace  the  settler  and 
mark  his  course  of  operation.  If  we  find  him  invariably  occu- 
pying the  high  and  thin  lands  requiring  little  clearing  and 
no  drainage,  those  which  can  yield  but  a  small  return  to  labor, 
and  as  invariably  traveling  down  the  hills  and  clearing  and 
draining  the  lower  and  richer  lands,  as  population  and  wealth 

*  Past,  Present,  and  Future,  p.  23. 


400  POLITICAL   ECONOMY. 

increase,  then  will  the  theory  we  have  offered  be  confirmed  by 
practice, — American  practice,  at  least. 

"  If,  however,  we  can  thence  follow  him  into  Mexico  and 
through  South  America,  into  Britain,  and  through  France, 
Germany,  Italy,  Greece,  and  Egypt,  into  Asia  and  Australia, 
and  show  that  such  has  been  his  invariable  course  of  action, 
then  may  it  be  believed  that  when  population  is  small  and 
land  consequently  abundant,  the  work  of  cultivation  is,  and 
always  must  be,  commenced  upon  the  poorer  soils;  that,  with 
the  growth  of  population  and  wealth,  other  soils,  yielding  a 
larger  return  to  labor,  are  always  brought  into  activity,  with 
a  constantly  increasing  return  to  the  labor  expended  upon 
them." 

487.  All  this  is  Irrelevant  to  the  Doctrine  of  Rent.— 
I  will  not  say,  with  Prof.  Roscher,  that  Mr.  Carey's  lengthy 
exposition  is  "  rank  with  inexact  science  and  unhistorical  his- 
tory." It  does  not  matter  a  particle,  so  far  as  the  validity  of 
Ricardo's  doctrine  is  concerned,  whether  Mr.  Carey  has  cor- 
rectly apprehended  or  grossly  misapprehended  the  facts  of 
human  history,  in  the  respect  under  consideration. 

Let  it  be  conceded  that  the  order  of  settlement  in  all  new 
countries  is  that  which  Mr.  Carey  has  indicated, — the  new- 
comers taking  up  light,  dry,  sandy  soils,  which  will  yield  a 
quick  return  to  the  labor  of  the  colonists,  aided  by  their  scanty 
capitals  ;  and  that  it  is  only  when  wealth  has  been  in  some 
measure  accumulated,  after  the  first  severe  struggle  to  main- 
tain existence,  that  deeper  and  richer,  but  cold  and  wet  soils, 
are  opened,  the  forests  cleared,  the  swamps,  rich  with  the 
vegetable  mold  of  centuries,  drained.  What,  pray,  does  all 
this  prove,  so  far  as  the  doctrine  under  consideration  is  con- 
cerned ?  It  is  absolutely  indifferent  to  the  matter  at  issue. 

It  is  true  that  Ricardo  assumed,  for  the  purpose  of  illustrat- 
ing his  doctrine,  that  the  soils  first  cultivated,  within  any  con- 
siderable country,  were  those  most  productive.  It  also  appears 
from  the  context,  that  Mr.  Ricardo  really  supposed  that  this 
was  the  historical  order  of  occupation.  Yet  the  economic  law 
of  rent  has  reference  alone  to  lands  under  cultivation  AT 
THE  SAME  TIME  ;  and  would  have  precisely  as  much  validity  if 


CAREY'S  HISTORICAL   ARGUMENT.  4°  I 

every  thing  which  Mr.  Carey  has  contended  for,  regarding  the 
actual  order  of  settlement  and  cultivation,  were  conceded,  as 
if  the  hypothesis  of  Ricardo  were  historically  accurate. 

488.  Is  this  History  indeed  Historical  ? — I  have  said  that 
the  complete  establishment  of  Mr.  Carey's  historical  order 
would  not  effect  the  validity  of  Ricardo's  law  of  rent ;  and 
that,  therefore,  one  might,  for  argument's  sake,  concede  the 
accuracy  of  the  narrative  concerning  the  early  settlement  of 
Europe,  Asia,  and  America,  which  occupies  so  large  a  portion 
of  his  treatises. 

But  while  the  historical  order  of  settlement  is  thus  of  no  con- 
sequence as  affecting  the  economic  law  of  rent,  it  must  be 
admitted  that  important  consequences  would  follow  the  estab- 
lishment of  the  proposition  that  "  the  work  of  cultivation  is 
and  always  must  be  commenced  upon  the  poorer  soils  ;  that, 
with  the  growth  of  population  and  wealth,  other  soils  yielding 
a  larger  return  to  labor  are  always  brought  into  activity;  "  or, 
as  the  author  elsewhere  expresses  it,  that  the  settler  invariably 
travels  down  the  hills,  clearing  and  draining  the  lower  and 
richer  lands,  as  population  and  wealth  increase. 

What  are  the  economic  consequences  which,  as  we  have  said, 
would  follow  the  establishment  of  Mr.  Carey's  proposition  ? 
These  :  that,  instead  of  the  increase  of  population  lowering 
the  margin  of  cultivation,  and  thus  enhancing  the  aggregate 
body  of  rents,*  it  would  be  shown  to  have  the  effect,  by  stim- 
ulating the  cultivation  of  better  lands,  to  throw  out  the  poorer 
(the  first  cultivated)  soils,  and  thus  to  raise  the  lower  limit  of 
cultivation,  and  thus  at  once  to  diminish  the  share  of  the  prod- 
uce going  as  rent  to  the  landlord,  and  to  increase  the  average 
produce,  per  capita,  of  the  community.  Rents  will  still  be 
determined  by  the  Ricardian  formula  ;  but  the  importance  of 
rent  as  a  factor  in  the  distribution  of  wealth  will  be  diminished. 

In  view  of  the  importance  of  these  consequences,  let  us  pro- 
ceed to  examine  Mr.  Carey's  sweeping  assertions  regarding 
the  actual  order  of  settlement  and  occupation,  for  the  purposes 
of  agriculture.  Let  us  see  whether  this  history  be  indeed  his- 
torical or  not. 

*  See  par.  257. 


402  POLITICAL  ECONOMY. 

In  the  first  place,  we  note  that  the  detailed  accounts  Delate, 
in  the  main,  either  to  the  settlement  and  cultivation  of  coun- 
tries in  ages  when  military  necessities  were  a  controlling  force, 
or  else  to  the  very  earliest  stages  of  settlement  and  cultivatio'n 
of  the  land,  under  circumstances  which  made  the  needs  of 
immediate  subsistence  peculiarly  urgent,  as  in  the  new  States  of 
the  American  Union,  eighty,  sixty,  forty  years  ago. 

It  would  take  more  time  than  we  have  at  command  to  go 
through  the  history  of  the  settlement  of  Britain,  Italy,  Greece, 
Germany,  and  other  ancient  countries,  and  attempt  to  analyze 
the  influences  which  determined  the  selection  of  lands  for 
habitation  and  cultivation.  When  we  contrast  the  sites  of 
nearly  all  ancient  and  medieval  cities,  built  upon  the  tower- 
ing rock,  with  the  utterly  indefensible  sites  of  our  modern 
cities,  we  can  well  understand  that  not  economic  but  political 
and  military  exigencies  may  have  given  a  strong  preference 
to  high  and  rugged  ground,  even  for  agriculture,  in  the  days 
of  almost  universal  warfare.  The  crops,  indeed,  raised  on 
such  ground  would  neither  be  so  ample,  nor  obtained  with  so 
little  effort  and  sacrifice,  as  those  which  might  have  been 
raised  in  the  fertile  valleys  below,  but  they  would  be  in  a 
less  degree  subject  to  be  swept  away  by  occasional  forays  of 
armed  bands. 

Fortunately,  we  do  not  need  to  enter  into  an  analysis 
involving  so  much  time  and  labor,  and  perplexed  by  so  many 
uncertainties  regarding  the  facts  with  which  we  should  have 
to  deal.  If  the  forces  which  in  those  days  determined  popu- 
lation to  high  and  poor  soils  were  exclusively  or  even  pre- 
dominantly economic  forces,  we  shall  not  fail  to  find  them 
operating  to  control  the  occupation  of  new  countries  in  these 
times  of  general  peace.  Let  us  then  consider  the  course  of 
settlement  in  the  United  States.  Mr.  Carey  himself  expresses 
his  preference  for  investigation  in  this  field.  "  Their  first 
settlement,"  he  says,  "  is  recent,  and,  the  work  being  still  in 
progress,  we  can  readily  trace  the  settler,  and  mark  his  course 
of  operation."  * 

*  Past,  Present,  and  Future,  p.  24. 


CAREY'S  HISTORICAL^  ARGUMENT,  403 

489.  Take  the  Case  of  Ohio.— And,  to  further  narrow  the 
field,  let  us  confine  our  view  to  the  State  of  Ohio.  This  State 
is  as  favorable  as  any  to  the  theory  under  consideration. 
"  The  early  settlers,"  says  Mr.  Carey,  "of  Ohio,  Indiana,  and 
Illinois  uniformly  selected  the  higher  grounds,  leaving  the 
richer  lands  for  their  successors."  * 

The  settlement  of  Ohio  may  be  said  to  have  been  in 
progress  all  the  time  between  1802,  when  its  inhabitants  were 
fewer  than  50,000,  and  1832,  when  its  population  had  reached 
1,000,000  :  in  progress  in  this  sense,  that  not  until  the  latter 
date  had  settlers  found  their  way  into  every  corner  and 
county  of  the  new  State. 

Now  let  it  be  conceded  that  throughout  this  period  Mr. 
Carey's  statement  regarding  the  course  of  occupation  holds 
good  substantially.  I  say,  substantially,  because  to  justify 
the  assertion  that  the  settlers  "  uniformly  "  selected  the  higher 
grounds  would  require  a  greater  amount  of  particular  and 
local  knowledge  than  any  one  man  ever  possessed. 

How  much,  then,  would  there  be  in  this  fact,  admitted  for 
the  sake  of  argument,  which  should  be  in  contravention  of 
the  economic  doctrine  of  rent  ?  These  early  settlers  of  Ohio 
were,  in  the  first  instance,  necessarily  controlled  in  their 
"location "by  considerations  relating  to  the  transportation 
of  their  products  and  to  communication  with  the  settlements 
they  had  left  behind.  Now,  advantages  of  situation,  as  we 
have  before  seen,  enter  just  as  fully  into  the  net  productive- 
ness of  any  tract  of  land,  according  to  Ricardo's  doctrine,  as 
advantages  arising  from  superior  fertility.  Even  in  illus- 
trating the  origin  of  rent  (par.  259)  we  assumed  the  exis- 
tence of  a  very  productive  tract,  situated  at  so  great  a 
distance  that  it  would  not  be  occupied  until  cultivation  had 
been  driven  to  descend  through  several  successive  stages 
within  the  territory  immediately  surrounding  the  market. 

But,  secondly,  the  early  settlers  of  Ohio  were  largely 
compelled  by  the  immediate  exigencies  of  pioneer  life  to 
do  something  different  from  that  which  would  have  been 
the  most  advantageous  had  they  possessed  an  ample  store 

*  Past,  Present,  and  Future,  p.  33. 


.404  POLITICAL  ECONOMY. 

of  necessaries  and  of  the  utensils  and  materials  of  industry. 
New-comers  must  needs  do,  not  what  they  would,  but  what 
they  can  ;  they  must  raise  a  quick  crop,  by  little  labor  ;  and 
it  is  natural  enough  that  they  should  generally  seek  the  side- 
hill,  which  is  self-drained,  and  the  open  country,  which  does 
not  require  clearing,  and  the  thin,  dry  soil,  which  gives  a 
speedy,  though  not  a  large  return. 

They  still  seek  that  land  which  will  be  most  productive 
under  the  circumstances  in  which  they  find  themselves  placed  ; 
for,  as  Professor  Johnston*  has  well  said,  that  which  would 
be  rich  land  for  a  rich  man  may  be  poor  land  for  a  poor  man. 

490.  But  the  question  I  wish  now  to  raise  is,  whether,  when 
the  first  exigencies  of  pioneer  life  were  passed,  when  some 
store  had  been  accumulated,  when  population  had  become 
sufficiently  dense  to  allow  a  reasonable  degree  of  co-operation 
in  labor,  when  time  had  been  afforded  to  lay  out  roads  and 
bridges  and  to  perfect  the  means  of  transportation,  when  the 
capabilities  and  resources  of  the  land  had  become  thoroughly 
known,  —  whether  then  it  remained  true  that  cultivators  in 
Ohio  neglected  the  best  soils  for  those  of  an  inferior  quality  ? 

If  not,  the  fabric  so  laboriously  reared  for  assaulting  the 
stronghold  of  the  economists,  tumbles  to  the  ground,  of  its 
own  weight.  How  much  does  it  matter  that  the  people  of 
Ohio,  while  they  were  first  spreading  loosely  over  the  State, 
took  up  lands  as  is  asserted,  unless  it  can  be  proved,  or  at 
least  a  strong  presumption  can  be  established,  that  they  con- 
tinued to  take  up  poorer  soils,  in  preference  to  the  best  ?  Mr. 
Carey  asserts  that  the  hypothetical  order  of  settlement  is 
"  universally  false  "  ;  that  is,  it  is  false  as  applied  not  to  one 
but  to  all  stages  of  the  history  of  any  community.  As  this 
matter  is  important,  let  us  formulate  it  somewhat  rigidly. 

Let  us  suppose  the  possibly  cultivable  lands  of  Ohio  to 
form  seven  distinct  grades,  1  to  7,  No.  1  being  the  poorest, 
No.  7  the  richest.  Let;  us  divide  the  economic  life  of  Ohio, 
beginning  in  1802  and  ending — when?  into  seven  genera- 
tions, with  continually  increasing  population. 

*A  distinguished  agricultural  chemist  of  Great  Britain,  author  of 
"  Notes  on  North  America." 


CAREY'S  HISTORICAL   ARGUMENT.  405 

Now,  according  to  the  view  we  are  considering,  generation 
No.  1,  the  first  settlers,  will  take  up  lands  No.  1,  the  poorest 
of  all ;  generation  No.  2  will  take  up  lands  No.  2,  the  next  to 
the  poorest ;  generation  No.  3  will  take  up  lands  No.  3,  and 
so  on. 

This,  or  something  very  like  it,  must  take  place,  or  our 
"  law  "  breaks  down  ;  for  should  generation  No.  3,  say,  have 
the  presumption  to  take  up  lands  No.  6,  and  generation  No. 
4  be  thereby  encouraged  to  take  up  lands  No.  7,  why  then 
generation  No.  5  will  be  compelled  to  take  up  lands  No.  5, 
that  is,  lands  poorer  than  those  which  had  been  brought  in  by 
the  two  generations  preceding,  while  generation  No.  6  will  be 
•driven  to  take  up  lands,  No.  4,  far  down  on  the  scale  of 
fertility  ;  and  generation  No.  7,  the  flower  of  civilization,  will 
actually  have  to  "decline  upon"  lands  No.  3,  which,  accord- 
ing to  Mr.  Carey,  generation  No.  3  should,  in  conscience,  have 
taken  up.  In  other  words,  we  should  have  cultivation  driven 
down  to  inferior  soils,  a  state  of  things  respecting  which 
Ricardo's  critic  declares  that  it  not  only  never  has  existed  in 
any  country  whatsoever,  but  that  it  is  contrary  to  the  nature 
of  things  that  it  should  have  existed  or  can  exist. 

In  view  of  such  possible  results,  what  an  appalling  respons- 
ibility rests  upon  the  people  of  any  generation  in  the  matter 
of  not  taking  up  any  better  land  than  they  ought !  In  the 
iirst  place,  think  what  a  degree  of  virtue  it  requires,  that  they 
should  deliberately  deny  themselves  the  enjoyment  of  the 
really  best  land  around  them,  in  order  that  the  coming  gener- 
ations, with  increasing  numbers,  should  have  the  privilege  of 
first  occupying  these,  as  Mr.  Carey  says  they  must  do!  Even 
more  remarkable  than  this,  think  of  the  degree  of  intelligence 
that  is  required  to  point  out  to  the  men  of  any  generation 
just  the  share  of  the  lands  of  the  State  which  Mr.  Carey's 
theory  will  permit  them  to  occupy,  they  being  necessarily 
ignorant  as  to  what  the  future  population  of  the  State  is  to  be, 
or  through  how  many  generations  or  centuries  the  increase 
of  population  upon  the  territory  is  to  be  continued  ! 

491.  But  let  us  return  to  Ohio.  We  have  seen  what  is 
required  to  make  this  "  historical  law  "  true.  How  far  do 


406  POLITICAL  ECONOMY. 

the  probabilities  of  the  case  favor  the  application  of  that 
law  throughout  the  settlement  of  that  State  ? 

We  may  believe  that  there  were,  in  Ohio,  in  1832,  when  the 
population  was  1,000,000,  about  4,000,000  acres  of  improved 
land  in  farms.  By  1850,  when  the  population  had  risen  to 
2,000,000,  these  4,000,000  acres  had  become  10,000,000.  Did 
the  addition  thus  made  to  the  inclosed  and  improved  lands  of 
the  State  include  a  fair  proportion  of  the  best  lands  within  its 
limits,  or  were  the  new  lands,  also,  thin,  dry,  sandy  soils, 
only  not  quite  so  poor  as  those  brought  in  between  1802  and 
1832, — soils  giving  little  root  to  grasses  or  to  grain,  but 
raising  a  small  crop  easily  and  quickly  ?  Unless  the  latter 
was  the  case,  this  great  historical  law  becomes  little  better 
than  arrant  nonsense. 

There  is  a  popular  belief  throughout  the  Eastern  States  of 
this  Union,  that,  in  the  eighteen  years  covered  by  this  period, 
— 1832-50, — there  was  an  immense  amount  of  "clearing"' 
done  in  Ohio  ;  and  the  virtues  of  the  "  pioneer's  ax  "  have 
been  celebrated  in  song  and  story.  Is  this  all  a  mistake  ?  Or, 
if  the  people  of  Ohio  really  did  cut  down  the  primeval 
timber  over  thousands  of  square  miles,  did  they,  as  they  ought, 
take  pains  to  cut  down  only  timber  which  grew  over  com- 
paratively poor  soils,  so  as  not  to  interfere  with  the  rights 
vested  in  unborn  generations  by  Mr.  Carey's  "  law  "  ? 

Between  1850  and  1880,  again,  the  population  of  Ohio  in- 
creased to  3,000,000,  and  the  number  of  acres  of  improved  lands 
rose  to  18,000,000.  Were  the  8,000,000  acres  improved  for 
the  first  time  during  this  period,  all,  or  substantially  all,  of  a 
quality  next  above  those  previously  brought  in,  but  still  below 
the  best  ?  Did  this  added  territory  embrace  lands  only  a 
little  less  thin,  a  little  less  shallow,  than  those  occupied  in 
1850  ?  Did  this  vast  annexation  still  leave  the  really  good 
lands  of  the  State  uncultivated,  only  to  be  improved  when  the 
population  shall  reach  5,000,000  or  10,000,000? 

492.  I  do  not  care  to  contest  Mr.  Carey's  assertion  that  the 
first  generation  of  settlers  in  any  American  State  have  spread 
themselves  loosely  over  the  soil,  picking  out  the  spots  which 
offered  the  greatest  facilities  for  the  tiansportation  of  produce 


CAREY'S  HISTORICAL  ARGUMENT.  4°7 

and  for  communication  with  the  older  settlements,  perhaps 
giving  a  certain  preference  to  naturally  cleared,  self -drained 
land.  But  that  the  second  generation,  in  any  American  State, 
north  of  Mason  and  Dixon's  line  at  least,  have  shrunk  from 
the  real  problem  of  their  economic  life,  have  failed  to  grapple 
with  the  obstacles  which  withstood  their  acquisition  of  the 
richest  resources  of  nature,  have  neglected  to  subdue  the  soil, 
the  best  soil  they  could  find,  with  ax  and  spade,  strenuously, 
manfully,  with  incessant  toil,  with  unflinching  courage,  I,  for 
one,  do  not  believe  ;  and  Mr.  Carey  has  not  adduced  a  scintilla 
of  evidence  to  prove  a  proposition  so  contrary  to  all  we 
have  ever  learned  of  the  character  and  life  of  the  Western 
people.  In  the  absence  of  any  such  statistical  demonstration, 
common  fame  and  common  sense  give  the  flattest  contradic- 
tion to  this  hypothesis. 

With  this  we  may  safely  leave  the  argument  against  the 
Ricardian  doctrine  of  rent.  The  person  who  denies  the  truth 
of  the  Ricardian  law  in  effect  declares  that  men  habitually 
rent  or  sell  highly  fertile  and  comparatively  infertile  fields, 
rich  corn  lands  and  mountain  pastures,  at  the  same  price  ; 
that  men  habitually  rent  or  sell  lands  near  a  market  at  the 
same  price  with  lands  the  most  distant  from  the  market.  If 
he  does  not  mean  to  assert  this,  he  does  not  in  the  smallest 
degree  traverse  the  path  of  Ricardo's  argument.  If  he  does 
mean  to  assert  this,  he  puts  himself  on  the  level  of  the 
person  who  should  assert  that  men  habitually  sell  two  bushels 
or  ten  bushels  of  wheat,  indifferently,  at  one  and  the  same 
price.  / 


THE   NATIONALIZATION   OF   THE   LAND. 

493.  The  Law  of  Kent  Re-stated.— We  have  seen  what  is 
the  nature  of  Rent.  It  represents  the  surplus  of  the  produce 
over  the  cost  of  cultivation  on  the  poorest  lands  actually  con- 
tributing to  the  supply  of  the  market  at  the  time. 

We  saw   (par.  262-4)  that,   conceding  the  private   owner- 


408  POLITICAL  ECONOMY. 

ship  of  land,  rent  is  merely  a  question  between  landlord  and 
tenant  ;  that  so  far  as  economic  forces  are  concerned,  rent 
must  remain  in  the  hands  of  the  landlord  ;  that,  setting 
violence  aside,  it  can  only  come  into  the  hands  of  the  tenant 
by  gift  from  the  landlord  ;  that,  were  it,  by  virtue  of  the 
landlord's  generosity,  to  reach  the  tenant,  it  would,  so  far  as 
economic  forces  are  concerned,  go  no  further.  It  could  only 
be  carried  to  the  agricultural  laborer  or  to  the  consumer  of 
agricultural  produce,  by  another  gift  or  series  of  gifts. 

494.  The  Equities  of  Rent,  as  between  Landlord  and 
Tenant. — So  much  for  the  economics  of  rent  ;  let  us  look  a 
moment  at  the  equities  of  it. 

Certainly,  as  between  the  landlord  and  the  tenant,  the  latter 
can  set  up  no  claim  to  any  portion  of  rent.  This  is  shown  in 
the  following  way  :  It  is,  as  we  have  seen,  of  the  very  essence 
of  rent  that  it  represents,  and  is  measured  by,  the  surplus  of 
produce  over  the  cost  of  cultivation  on  the  poorest  (or  most 
distant)  lands  under  cultivation  for  the  supply  of  the  same 
market.  Now,  these  poorest  or  most  distant  lands  have  occu- 
piers who  must  be  presumed  to  be  industrially,  and,  if  you 
please,  morally,  just  as  meritorious  as  those  who  cultivate  the 
better  lands  or  the  lands  nearer  the  market.  The  several 
classes  of  tenants  are  only  put  on  an  equality  when  rent  i» 
exacted  according  to  the  Ricardian  formula.  It  would  clearly 
be  inequitable  that  one  body  of  occupiers  should  receive  back, 
in  the  price  of  their  products,  only  the  actual  cost  of  cultiva- 
tion, while  another  should  receive  large  sums  in  addition  to 
this,  as  would  be  the  case  were  rents  to  be  remitted. 

495.  As  between  Landlord  and  the  Agricultural  Laborer. 
— In  the  same  way  it  may  be  shown  that  the  agricultural 
laborers  on  lands  which  bear  a  rent  have  no  claim,  in  equity  > 
to  any  portion  of  that  rent.     Why  should  they  receive  any 
more  for  their  services  than  the  laborers  who  cultivate  the  no- 
rent  lands  ? 

Clearly,  then,  as  against  either  the  tenant  or  the  agri- 
cultural laborer,  the  landlord  has  an  easy  case.  He  can 
prove  that  neither  of  the  two  has  any  claim  whatever  to  any 
part  of  what  he  receives  as  rent. 


THE  EQUITIES  OF  RENT.  409 

496.  As  between  the  Landlord  and  the  Community  at 
Large. — But  suppose  the  issue  to  be  raised  between  the  land- 
lord and  the  whole  community,  can  the  acquisition   by  indi- 
viduals  of   the   surplus  of   the   produce   above   the   cost   of 
cultivation  on  the  poorest  soils,  be  so  successfully  defended  on 
grounds  either  of  political  equity  or  of  political  expediency  ? 

As  this  question  has  within  the  past  few  years  become  a 
"burning"  question,  I  think  it  but  right  to  present  the 
argument  of  those  who  urge  that  "  the  unearned  increment  of 
land "  should  go  to  the  State  and  not  to  individuals.  This 
argument  can  not  be  better  presented  than  in  the  language  of 
John  Stuart  Mill,  who,  in  his  later  days,  became  President  of 
the  English  Land  Tenure  Reform  Association,  whose  pro- 
fessed object  was  to  agitate  this  question. 

497.  Mr.  Mill's    Argument.—"  Suppose,"  says   Mr.  Mill, 
"  that  there  is  a  kind  of   income   which   constantly  tends  to 
increase  without  any  exertion  or  sacrifice  on  the  part  of  the 
owners,  these  owners   constituting  a  class  in  the  community 
whom  the  natural  course    of  things   progressively   enriches, 
consistently  with  complete  passiveness  on  their  own  part.     In 
such  a  case  there  would  be  no  violation  of  the  principles  on 
which   private    property   is    founded,    if    the    State  should 
appropriate  this  increase  of  wealth,  or  any  part  of  it,  as  it 
arises.     This  would  not  properly  be  taking  any  thing  from  any 
body  ;  it  would  merely  be  applying  an   accession  of   wealth, 
created  by  circumstances,  to  the  benefit  of  society,  instead  of 
allowing  it  to  become  an  unearned  appendage  to  the  riches  of 
a  particular  class. 

"  Now  this  is  actually  the  case  with  rent.  The  ordinary 
progress  ?f  a  society  which  increases  in  wealth,  is  at  all  times 
tending  to  augment  the  income  of  landlords  ;  to  give  them 
both  a  greater  amount  and  a  greater  proportion  of  the  wealth 
of  the  community,  independently  of  any  trouble  or  outlay 
incurred  by  themselves.  They  grow  richer,  as  it  were,  in  their 
sleep,  without  working,  risking  or  economizing." 

In  the  paper  from  which  the  foregoing  paragraphs  are 
extracted,  Mr.  Mill  expressly  excepted  the  present  value  of 
the  land  in  possession  of  individuals  at  the  time  the  system  of" 


410  POLITICAL  ECONOMY. 

the  public  acquisition  of  the  increment  of  the  land  should  go 
into  effect.  Such  an  act  should,  in  his  view,  have  reference 
only  to  future  increase. 

In  another  place,  while  expressing  a  general  respect  for  the 
rights  of  property,  Mr.  Mill  proceeds  : 

"  Some  people  ask,  But  why  single  out  the  land  ?  Does  not 
all  property  rise  in  value  with  the  increase  of  prosperity  ?  I 
answer,  No.  All  other  property  fluctuates  in  value,  now  up, 
now  down.  I  defy  any  one  to  show  any  kind  of  property,  not 
partaking  of  the  soil,  and  sufficiently  important  to  be  worth 
•considering,  which  tends  steadily  upward,  without  any  thing 
being  done  by  the  owners  to  give  it  increased  value.  So  far 
from  it,  that  the  other  of  the  two  kinds  of  property  that 
yield  income,  namely,  capital,  instead  of  increasing,  actually 
diminishes  in  value  as  society  advances.  The  poorer  the 
country,  or  the  further  back  we  go  in  history,  the  higher  we 
find  the  interest  of  money  to  be.  Land  alone — using  land  as 
a  general  term  for  the  whole  material  of  the  earth — has  the 
privilege  of  steadily  rising  in  value  from  natural  causes  ;  and 
the  reason  is  that  land  is  strictly  limited  in  quantity  ;  the 
supply  does  not  increase  to  meet  the  constant  increase  of 
demand  .  .  . 

"Well  would  it  have  been  if  this  diversion  of  the  public 
wealth  had  been  foreseen  and  guarded  against  long  ago  ;  let 
us  at  least  prevent  any  more  gigantic  fortunes*  from  being 
built  up  in  a  similar  manner.  The  Association  claims  for  the 
State  the  right  to  impose  special  taxation  upon  the  land, 
equivalent  to  its  special  advantage." 

"Those  countries  are  fortunate,"  remarks  Mr.  Mill,  "or 
would  be  fortunate,  if  decently  governed,  in  which,  as  in  a 

*  "  If  the  Grosvenor,  Portman  and  Portland  estates  belonged  to  the 
municipality  of  London,  the  gigantic  incomes  of  those  estates  would 
probably  suffice  for  the  whole  expense  of  the  local  government  of  the  capital. 
But  these  gigantic  incomes  are  still  swelling  ;  by  the  growth  of  London 
they  may  again  be  doubled  in  as  short  a  time  as  they  have  doubled 
already." — Ibid.  Prof.  Adolph  Wagner,  of  the  University  of  Berlin, 
advocates  the  assumption  by  the  State  of  all  urban  real  estate,  while 
•deprecating  the  extension  of  the  principle  to  agricultural  land. 


FEUDAL   BURDENS  ON  LAND.  411 

great  part  of  the  East,  the  land  has  not  been  allowed  to  become 
the  permanent  property  of  individuals,  and  the  State  conse- 
quently is  the  sole  landlord.  So  far  as  the  public  expenditure 
is  covered  by  the  proceeds  of  the  land,  those  countries  are 
untaxed,  for  it  is  the  same  thing  as  being  untaxed  to  pay  to 
the  State  only  what  would  have  to  be  paid  to  private  landlords 
if  the  land  were  appropriated. 

"  The  principle  that  the  land  belongs  to  the  Sovereign,  and 
that  the  expenses  of  government  should  be  defrayed  by  it,  is 
recognized  in  the  theory  of  our  own  ancient  institutions.  The 
nearest  thing  to  an  absolute  proprietor  whom  our  laws  know 
of,  is  the  freeholder,  who  is  a  tenant  of  the  Crown,  boxind 
originally  to  personal  service,  in  the  field  or  at  the  plow, 
and  when  that  obligation  was  remitted,  subject  to  a  land  tax 
intended  to  be  equivalent  to  it." 

498.  The  Feudal  Burdens  of  Land  in  England. — In  the 
paragraph  last  quoted,  Mr.  Mill  contemplates  the  feudal  obliga- 
tions of  the  tenant  by  military  and  other  service  as  approximately 
the  equivalent  of  an  annual  rent,  which  would  be  made,  rudely 
indeed,  to  increase  with  the  increasing  value  of  land  due  to 
the  growth  of  population  and  the  progress  of  trade  and  manu- 
factures. The  chief  of  these  obligations,  as  formulated  by  law 
and  custom  in  England,  are  thus  stated  by  Sir  Edward  S.  Creasy, 
in  his  work  on  "  The  English  Constitution." 

The  king,  as  feudal  lord  of  his  barons,  and  other  military 
tenants,  had  a  right  to  exact  from  them  military  service,  or  a 
pecuniary  payment  in  lieu  thereof  ;  and  it  seems  to  have  been 
optional  with  the  king  to  claim  the  money,  whether  the  vassal 
wished  to  serve  in  person  or  not,  and  even  to  exact  both 
money  and  personal  service.  This  war  tax  is  called  escuage 
or  scutage,  and  the  constant  wars  and  troubles  of  the  times 
always  furnished  a  ready  pretext  for  demanding  it.  Other 
exactions  of  money  payments,  under  the  name  of  aids,  were 
continually  practiced.  Besides  these,  the  heir,  on  succeeding 
to  his  estate,  was  required  to  pay  a  sum  of  money  to  the  lord, 
under  the  title  of  a  "  relief."  If  the  heir  was  a  minor,  the 
lord  took  possession  of  the  land,  as  guardian,  and  used  or 
abused  it  as  he  pleased,  till  the  heir  obtained  his  majority. 


412  POLITICAL  ECONOMY. 

Even  then  the  heir  was  obliged  to  pay  a  fine  on  suing  out  his 
livery,  that  is,  on  obtaining  the  delivery  of  the  land  from  his 
guardian  to  him.  The  lord  also  had  the  right  of  nominating 
and  tendering  a  wife  to  his  male  ward,  or  a  husband  to  his 
female  ward.  And  if  the  ward  declined  to  marry  the  person 
so  selected,  the  ward  forfeited  to  the  lord  such  a  sum  of  money 
as  the  alliance  was  considered  worth.  The  lord  was  entitled 
to  a  fine  upon  alienation  :  that  is,  if  the  tenant  disposed  of 
the  land,  or  any  part  of  it,  to  any  third  party.  If  the  tenant 
died  without  heirs  the  land  reverted  to  the  lord.  This  was 
termed  escheat  (par.  573),  and,  as  the  right  of  devising  real 
property  did  not  exist  in  England  after  the  Conquest,  till 
Henry  VIII's  time,  escheats  were  numerous.  The  lord  also 
claimed  to  take  back  the  land  whenever  the  tenant  committed 
any  of  a  numerous  list  of  crimes  or  acts  of  feudal  misconduct. 
Such  criminality  or  misconduct  on  the  tenant's  part  was  held 
to  work  a  forfeiture. 

499.  Composition  for  the  Feudal  Burdens  Upon  Land.— 
On  the  restoration  of  Charles  II.,  the  land-owning  class  secured 
their  release  from  the  strictly  feudal  burdens,  the  considera- 
tion received  by  the  Crown  being  solely  an  excise  upon  beer; 
and  thus  the  vast  possibilities  of  revenue  to  be  derived  from 
the  composition  of  the  feudal  obligations  of  the  landowning 
class  were  sacrificed.  In  the  revolution  of  1688,  however, 
there  was,  as  Mr.  Mill  notes,  a  reaction  against  this  sacrifice 
of  the  rights  of  the  public  revenue.  Indeed,  the  revolution 
of  1688  was,  in  Mr.  Mill's  view,  "a  revolution  made  by  the 
towns  against  the  country  gentlemen.  One  of  the  fruits  of 
it  was  a  tax  on  the  land  of  four  shillings  in  the  pound,  which, 
at  that  time,  may  have  been  an  equivalent  for  the  burdens 
which  had  been  taken  off  the  landlords." 

In  1692,  accordingly,  the  lands  of  England  were  valued  for 
the  purposes  of  the  land  tax. 

This  land  tax  was  to  be  a  tax,  not  upon  the  community,  not 
upon  raw  produce,  not  upon  commercial  agencies  and  manufac- 
turing operations,  but  solely  a  tax  upon  landlords,  in  reduction 
of  their  rents  :  a  resumption  by  the  State,  for  its  own  benefit 
and  for  the  corresponding  relief  of  other  classes,  of  a  portion 


THE  LAND    TAX.  413 

of  the  rents  arising  from  the  increase  of  population  and  the 
progress  of  trade  and  manufactures. 

The  following  is  Mr.  Ricardo's  statement  of  the  incidence 
of  a  land  tax  : 

"  A  land  tax,  levied  in  proportion  to  the  rent  of  land,*  and 
varying  with  every  variation  of  rents,  is,  in  effect,  a  tax  on 
rent,  and,  as  such  a  tax  will  not  apply  to  that  land  which  yields 
no  rent,  nor  to  the  produce  of  that  capital  which  is  employed 
on  the  land  with  a  view  to  profit  merely  and  which  never  pays 
rent,  it  will  not,  in  any  way,  affect  the  price  of  raw  produce, 
but  will  fall  wholly  on  the  landlords." 

But  if  the  revolution  of  1688  was,  indeed,  as  Mr.  Mill  con- 
ceives it,  a  revolt  of  the  towns  against  the  country  gentlemen, 
the  force  of  that  movement  was  soon  exhausted.  The  land- 
owners resumed  control  of  English  legislation  ;  the  valuation 
of  1692  has  remained  to  this  day  as  the  basis  of  the  land  tax, 
while  the  rate  of  that  tax  was  in  1798  made  permanent  at  4 
shillings  in  the  pound  on  the  valuation  of  that  date.  It  was  by 
this  series  of  acts  that  the  right  of  the  State  to  participate  in  the 
increase  of  the  rental  value  of  the  lands  of  the  kingdom  was 
relinquished,  in  consideration  of  an  annual  payment,  forever, 
of  about  £2,000,000. 

5OO.  Mr.  Cobden's  Denunciation — It  was  to  this  relin- 
quishment  of  the  rights  of  the  revenue  by  parliaments  com- 
posed of  country  gentlemen,  for  the  benefit  of  landlords,  at 
the  expense  of  the  general  community,  that  Richard  Cobden 
alluded  in  his  somewhat  threatening  speech  of  December  17, 
1845. 

"  I  warn  ministers  and  I  warn  landowners  and  the  aristoc- 
racy of  this  country  against  forcing  upon  the  attention  of  the 
middle  and  industrious  classes  the  subject  of  taxation. 

"  If  they  make  it  understood  by  the  people  of  this  country  how 
the  landowners  here  one  hundred  and  fifty  years  ago  deprived 
the  sovereign  of  his  feudal  rights  over  them;  how  the  aristocracy 
retained  their  feudal  rights  over  the  minor  copyholders  :  how 

*  On  the  other  hand,  Mr  Ricardo  says,  "  If  a  land  tax  be  imposed  on 
all  cultivated  land,  however  moderate  that  tax  may  be,  it  will  be  a  tax 
on  produce,  and  will  therefore  raise  the  price  of  produce." 


414  POLITICAL  ECONOMY. 

they  made  a  bargain  with  the  king  to  give  him  four  shillings  in 
the  pound  upon  their  landed  rentals,  as  a  quit  charge  for  having 
dispensed  with  these  rights  of  feudal  service  from  them  ;  if 
the  country  understand,  as  well  as  I  think  I  understand,  how 
afterwards  this  landed  aristocracy  passed  a  law  to  make  the 
valuation  of  their  rental  final,  the  bargain  originally  being  that 
they  should  pay  four  shillings  in  the  pound  of  the  yearly 
rateable  value  of  their  rental,  as  it  was  worth  to  let  for,  and 
then  stopped  the  progress  of  the  rent  by  a  law  making  the 
valuation  final;  that  the  land  has  gone  on  increasing  ten-fold 
in  many  parts  of  Scotland,  and  five-fold  in  many  parts  of 
England,  while  the  land  tax  has  remained  the  same  as  it  was 
one  hundred  and  fifty  years  ago  ;  ...  if  they  force  these 
things  to  be  understood,  they  will  be  making  as  rueful  a  bargain 
as  they  have  already  made  by  resisting  the  abolition  of  the 
Corn  Law." 

501.  Mr.  Mill's  Land-Tenure  Reform  Agitation. —  What 
Mr.  Cobden  thus  threatened  in  1845,  Mr.  Mill  undertook  about 
1870  :  an  agitation  of  the  whole  question  of  taxation,  and  an 
active  inquiry  into  the  right  of  the  landlord  class  to  receive 
the  progressive  increase  of  rents. 

The  following  is  an  extract  from  the  programme  of  the 
Land-Tenure  Reform  Association,  of  which  Mr.  Mill  was 
President  : 

"(IV.)  To  claim  for  the  benefit  of  the  State,  the  Intercep- 
tion by  Taxation  of  the  Future  Unearned  Increase  of  the  Rent 
of  Land  (so  far  as  the  same  can  be  ascertained),  or  a  great 
part  of  that  increase,  which  is  continually  taking  place  with- 
out any  effort  or  outlay  by  the  proprietors,  merely  through 
the  growth  of  population  and  wealth  ;  reserving  to  owners 
the  option  of  relinquishing  their  property  to  the  State,  at  the 
market  value  which  it  may  have  acquired  at  the  time  when 
this  principle  may  be  adopted  by  the  Legislature." 

502.  What  Shall  be  Said  of  the  Equity  of  this  Proposal? 
— In  their  appeal  alike  to  history  and  to  political  equity,  I 
can  not  see  that  the  Land-Tenure  Reformers,  under  Mr.  Mill's 
leadership,  were  wrong.     That  (l),  by  the  original  Teutonic 
constitutions  the  land  belonged  to  the  tribe  or  the  community, 


THE    UNEARNED  INCREMENT.  415 

and  not  to  individuals,  and  was  generally  cultivated  and  en- 
joyed in  common  or  by  rotation  of  tenure,  that  (2),  even  when 
permanence  of  individual  possession  was  established  and  titles 
were  created,  the  occupation  of  land  was  charged  with  duties 
to  the  State,  both  of  fiscal  contribution  and  of  personal  ser- 
vice, which  were  onerous,  and  which  tended  to  increase  as  the 
needs  of  the  State  increased  and  as  the  rental  value  of  the 
land  increased  ;  that  (3),  in  Europe,  generally,  when  the  oc- 
cupiers of  land  were  released  from  these  duties  to  the  State,  it 
was  upon  a  consideration  wholly  inadequate  or  upon  no  con- 
sideration at  all ;  while  that  release  was  conceded  by  the  land- 
owning class,  as  the  ruling  class,  to  themselves  as  parties  in 
interest,  in  a  way  which  in  this  age  would  be  regarded  as  cor- 
rupt ;  and  that  (4),  the  unqualified  ownership  of  land,  thus 
established,  enables  the  land-owning  class  to  reap  an  unearned 
benefit,  at  the  expense  of  the  community  :  these  propositions 
seem  to  me  indisputable. 

503.  What  of  its  Expediency? — As  a  measure  of  politi- 
cal expediency,  however,  the  scheme  of  the  assumption  by  the 
State  of  the  increment  of  land,  appears  to  me  fatally  defec- 
tive. 

In  the  first  place,  it  must  be  observed  that  a  large  part,  at 
best,  of  the  possible  mischief  has  already  been  done,  beyond 
repair,  in  the  surrender  of  the  rights  of  the  community  to 
individuals.  As  that  surrender  is  now  generations,  even  cen- 
turies old,  and  as  much  of  the  land  has  changed  owners,  some- 
times over  and  over  again  in  the  interval,  many  of  the  present 
possessors  having  paid  the  full  price  of  to-day,  in  good  faith, 
under  existing  arrangements  which  were  fully  sanctioned  by 
law,  it  would  be  simple  robbery*  for  the  State  to  reassert  its 
interest  in  the  land  without  fully  indemnifying  owners.  This 
the  English  Land-Tenure  Reform  Association,  in  their  pro- 
gramme already  quoted,  fully  acknowledged.  They  proposed 
tc  "  reserve  to  owners  the  option  of  relinquishing  their  prop- 
erty to  the  State  at  the  market  value  which  it  may  have 

*  It  will  be  seen  from  what  follows  that  it  is  only  in  this  respect  that 
Mr.  Henry  George's  proposal  differs  from  that  of  Mr.  Mill. 


41 6  POLITICAL  ECONOMY. 

acquired  at  the  time  when  this  principle  may  be  adopted  by 
the  Legislature." 

It  is  only,  then,  to  the  future  increase  in  the  value  of  land 
that  this  scheme  would  apply.  Such  a  limitation  of  its  scope 
would  not  only  greatly  reduce  the  importance  of  the  benefit  to 
be  derived  by  the  State  in  every  community,  but  would  deprive 
it  of  all  significance  in  many  communities*  where  land 
has  doubtless  already  reached  its  maximum  value. 

But,  secondly,  government  could,  by  the  confession  of  the 
Association,  not  realize  through  this  scheme  all  that  is  left 
after  the  foregoing  deduction  has  been  made.  Inasmuch  as 
the  State  is  bound  to  be  very  careful  and  solicitous  not  to  do 
injustice,  the  appraisement  of  the  present  rental  value,  or 
capital  value  of  estates,  in  the  administration  of  such  a  scheme, 
must  be  very  conservative.  This,  again,  is  admitted  by  Mr. 
Mill.  "  It  is  not  necessary,"  he  says,  "  to  enforce  the  rights, 
of  the  State  to  the  utmost  farthing.  A  large  margin  should 
be  allowed  for  possible  miscalculation."  f  Yet  such  an  allow- 
ance would  diminish,  by  just  so  much,  the  inducement  to  the 
State  to  assert  its  interest  in  the  lands  now  held  by  individuals. 

504.  How  About  Depreciating  Property  ?— Thirdly,  it  is 
clear,  that  the  State,  if  it  will  claim  the  benefit  of  all  increase 
in  the  value  of  lands  resulting  from  the  growth  of  demand, 
due  to  general  causes  affecting  the  increase  of  the  community 
in  numbers  or  productive  power,  is  bound  in  equity,  to  make 
good  all  losses  arising  from  the  decrease  in  the  value  of  lands 
which  results  from  the  decline  of  demand  due  to  general  causes, 
acting  in  the  opposite  .direction.  If  the  so-called  proprietor 
of  land  is  not  to  be  allowed  to  reap  any  gain  not  brought 
about  by  his  own  exertions,  he  must,  in  simple  fairness,  be 
protected  against  losses  which  no  vigilance  or  effort  of  his 

*For  example,  all  over  England,  Ireland  and  Scotland,  agricultural 
rents  have  been  steadily  falling  through  the  past  ten  years  or  more.  So 
it  has  been  in  many  of  the  States  of  the  American  Union. 

t  No  one  who  has  studied  with  care,  as  Mr.  Mill  had  done,  the  question 
of  "Unexhausted  Improvements"  as  an  element  in  tenant  right,  could 
fail  to  appreciate  the  appalling  difficulties  which  would  attend  the 
appraisement  of  real  estate  for  a  purpose  like  that  in  view  of  the  Land- 
Tenure  Reform  Association. 


FALL   IN  RENTS.  417 

could  have  averted.  "Heads  I  win:  tails  you  lose,"  is  not  a 
game  at  which  the  State  can,  in  fairness  or  decency,  play  with 
its  citizens. 

The  range  of  this  consideration  is  not  a  narrow  one.  In 
almost  every  community,  even  the  most  flourishing,  the 
phenomenon  of  declining  values  is  seen  side  by  side  with  that  of 
rising  values.  Notwithstanding  the  large  increase  during  the 
past  twenty  years  in  the  aggregate  value  of  real  estate  in  the 
city  of  Boston,  for  instance,  there  are  extensive  sections  where 
houses  will  not  bring  any  thing  near  their  price  at  the  begin- 
ning of  this  period.  Now  if,  in  1867,  the  principle  of  collect- 
ing for  public  uses  all  excess  of  rents  above  those  prevailing 
at  that  date,  or,  at  the  option  of  the  owner,  paying  the  capital 
value  of  the  property  and  assuming  the  ownership,  had  been 
adopted  by  competent  authority  in  and  for  the  city  of  Boston, 
the  city  would  now  be  paying  to  thousands  of  property 
holders  considerable  annuities,  representing  deficiencies  in 
rental  value  which  have  occurred  since  1867,  or  else  it  would, 
which  is  more  probable,  have  come  into  possession  of  street 
on  street  of  houses  and  stores  whose  owners  preferred  to  sur- 
render their  property  at  their  capital  value  in  1867. 

505.  Fourthly  : — Practical  objections  might  be  multiplied  ; 
but  it  will  be  sufficient  to  refer  to  the  official  jobbery,  trick- 
ery, and  corruption  which  would  be  involved  in  the  manage- 
ment by  the  state  of  all  the  landed  property  of  the  country, 
either  in  an  attempt  to  administer  it  productively,  or  in  the 
occasional  re-valuation  and  re-leasing  of  it  in  parcels  to  suit 
the  occasions  of  individuals.     To  my  view,  the  condition  of 
things  that  would  result  would  be  simply  intolerable.     When 
we  contemplate  the  history  of  even  petty  transactions  of  a 
like  character,  on  the  part  of  our  national  government,  or  of 
the  several  state  governments,  it  seems  impossible  to  believe 
that  any  inducement  should  ever  draw  the  American  people, 
traditionally   jealous    of   the   enlargement    of  governmental 
powers,  on  to  the  adoption  of  such  a  measure. 

MR.    HENRY    GEORGE'S    CRUSADE. 

506 .  The  proposals  for  the  nationalization  of  the  land,  offered, 


418  POLITICAL  ECONOMY. 

as  we  have  stated,  by  Mr.  Mill  in  1870,  while  they  received 
much  serious  consideration  from  economists  and  publicists, 
aroused  no  popular  excitement.  In  1879,  Mr.  Henry  George, 
then  of  San  Francisco,  published  a  work  entitled  "  Progress 
and  Poverty,"  which,  about  1883,  began  to  command  public 
attention  in  an  extraordinary  degree.  During  and  since  that 
year,  the  agitation  of  the  question  of  the  public  or  private 
ownership  of  the  soil,  has  gone  forward  with  increasing 
vehemence,  until  now  (1887),  both  in  Great  Britain  and  in  the 
United  States,  large  bands  of  enthusiastic  disciples,  call  them- 
selves by  the  name  of  the  author  of  "  Progress  and  Poverty." 

Mr.  George's  practical  proposals  require  but  brief  notice. 
They  differ  from  those  of  Mr.  Mill*  only  in  the  single  respect 
that,  while  Mr.  Mill,  like  an  honest  man,  contemplated  the 
full  compensation  of  the  existing  body  of  owners  of  land, 
according  to  the  value  of  their  several  properties,  at  the  time 
the  scheme  should  be  adopted  and  proclaimed  by  adequate 
authority,  Mr.  George  repudiates  any  such  obligation 
on  the  part  of  the  State,  and  proposes  to  confiscate  the  entire 
value  of  the  land.  The  attempted  justification  for  this 
precious  price  of  villainy  is  found  in  the  mere,  bald  assertion 
of  Mr.  Henry  George,  that  the  State  never  had  the  power  to 
give  a  title  to  any  parcel  of  land  to  any  person,  for  any 
purpose  ;  and  that,  therefore,  all  land  titles  are,  from  the 
beginning,  void.  Under  this  scheme,  alike  the  man  who 
cultivates  broad  tracts  for  profit,  and  the  man  who  occupies  a 
corner  with  his  humble  dwelling  ;  the  man  who  inherited  land 
from  his  ancestors,  and  the  man  who  has  bought  land  with 
the  savings  from  years  of  labor,  would  find  themselves  dis- 
poiled  without  redress  or  recompense.  Even  where  the 
government  itself  sold  the  land  and  put  the  proceeds  into  its 
treasury,  Mr.  George  would  have  the  government  confiscate 
the  property,  without  refunding  the  price  ! 

Mr.   George  is,   indeed,  good  enough  to  say  that  he  will 


*  Neither  Mr.  Mill  nor  Mr.  George  proposes  that  the  title  of  land  shall 
pass  to  the  state.  They  agree  on  the  plan  of  advancing  the  taxes  upon 
the  land  so  as  to  confiscate  the  successive  increments  of  value. 


MR.    GEORGE'S  PROPOSALS.  419 

allow  improvements  on  the  land  to  remain  the  property  of  those 
who  made  them,  although,  as  he  justly  remarks,  improvements 
made  by  any  person  on  land  not  his  own,  appertain  to  the 
land  and  pass  with  it.  The  gratification  naturally  felt  at  this 
magnanimous  proposal  is,  however,  qualified  by  the  reflection 
that,  if  the  sovereign  authority  of  a  nation,  with  the  full  con- 
currence and  glad  consent  of  all  its  citizens,  generation  after 
generation,  can  not,  as  Mr.  George  assures  us,  avail  to  give 
the  faintest  title  to  the  smallest  parcel  of  land,  possibly  Mr. 
George's  single  permission  to  the  unhappy  intruder  to  retain 
possession  of  his  improvements  might  not  prove  conclusive. 
In  another  generation,  or  perhaps  another  year,  some  new 
apostle  of  a  regenerated  humanity  might  become  a  candidate 
for  the  Mayoralty  of  New  York,  on  the  issue  of  confiscating 
land  improvements. 

So  much  for  Mr.  George's  practical  proposals.  I  will  not 
insult  my  readers  by  discussing  a  project  so  steeped  in  infamy. 

507.  Mr.  George's  View  of  Bent.— In  supporting  these 
proposals,  however,  Mr.  George  has  put  forward  a  theory  of 
the  relation  of  Rent  to  the  other  shares  of  the  product  of 
industry,  which  has  imposed  upon  so  many  persons  that  I  deem 
it  worth  while  to  state  and  refute  it  here.  Mr.  George's  view 
of  Rent,  as  a  factor  in  distribution,  affords  the  key  to  the  col- 
location of  the  words,  Progress  and  Poverty,  in  the  title  of 
his  work.  The  subject  of  that  work  is  Rent  ;  and  Progress 
and  Poverty  is,  in  his  opinion,  an  appropriate  title  for  a  treat- 
ise on  that  subject,  inasmuch  as,  according  to  his  theory,  all 
social  and  industrial  progress  does,  so  long  as  land  remains 
private  property,  that  is,  so  long  as  rent  is  paid  to  any  but  the 
State,  not  only  naturally  but  necessarily  and  inevitably,  cause 
poverty  to  increase,  at  a  constantly  accelerating  ratio.  To 
use  his  own  language  :  "  Irrespective  of  the  increase  of  popu- 
lation, the  effect  of  improvements  in  methods  of  production  and 
exchange  is  to  increase  rent"  The  proof  of  this  proposition 
is  as  follows  : — 

"Demand  is  not  a  fixed  quantity  that  increases  only  as 
population  increases.  In  each  individual  it  rises  with  his 
power  of  getting  the  things  demanded.  .  .  . 


420  POLITICAL   ECONOMY. 

"  The  amount  of  wealth  produced  is  nowhere  commensurate 
with  the  desire  for  wealth  ;  and  desire  mounts  with  every 
additional  opportunity  for  gratification. 

"  This  being  the  case,  the  effect  of  labor-saving  improve- 
ments will  be  to  increase  the  production  of  wealth.  Now,  for 
the  production  of  wealth,  two  things  are  required,  labor  and 
land.  Therefore,  the  effect  of  labor-saving  improvements 
will  be  to  extend  the  demand  for  land,  and  wherever  the  limit 
of  the  quality  of  land  in  use  is  reached,  to  bring  into  cultiva- 
tion lands  of  less  natural  productiveness,  or  to  extend  cultiva- 
tion on  the  same  lands  to  a  point  of  lower  natural  productive- 
ness. And  thus,  while  the  primary  effect  of  labor-saving 
improvements  is  to  increase  the  power  of  labor,  the  secondary 
effect  is  to  extend  cultivation,  and,  where  this  lowers  the  mar- 
gin of  cultivation,  to  increase  rent. 

"  Thus,  where  land  is  entirely  appropriated,  as  in  England, 
or  where  it  is  either  appropriated  or  is  capable  of  appropria- 
tion as  rapidly  as  it  is  needed  for  use,  as  in  the  United  States, 
the  ultimate  effect  of  labor-saving  machinery  or  improvements 
is  to  increase  rent,  without  increasing  wages  or  interest. 

"  It  is  important  that  this  be  fully  understood,  for  it  shows 
that  effects  attributed  by  current  theories  to  increase  of  popu- 
lation are  really  due  to  the  progress  of  invention,  and  explains 
the  otherwise  pei'plexing  fact  that  labor-saving  machinery 
everywhere  fails  to  benefit  laborers." 

And  he  concludes,  after  repeating  and  further  illustrating 
this  view  of  the  effect  of  productive  improvements  and  inven- 
tions, with  the  following  italicized  proposition  :  "  Wealth,  in 
all  its  forms,  being  the  product  of  labor  applied  to  land,  or 
the  products  of  land,  any  increase  in  the  power  of  labor,  the 
demand  for  wealth  being  unsatisfied,  will  be  utilized  in  pro- 
curing more  wealth,  and  thus  increase  the  demand  for  land." 
And  so,  to  use  his  own  phrase,  labor  can  not  reap  the  benefits 
which  advancing  civilization  brings,  because  they  are  "  inter- 
cepted," that  is,  intercepted  by  rent. 

That  it  may  not  be  supposed  that  I  am  misrepresenting  Mr. 
George,  or  omitting  any  qualification  of  his  propositions,  I 
quote  another  extended  paragraph. 


MR.    GEORGE'S   VIEW  OF  REN7\  421 

"  Land  being  necessary  to  labor,  and  being  reduced  to  pri- 
vate ownership,  every  increase  in,  the  productive  power  of  labor 
but  increases  rent, — the  price  that  labor  must  pay  for  the  oppor- 
tunity to  utilize  its  powers;  and  thus  all  the  advantages  gained 
by  the  march  of  progress  go  to  the  owners  of  land  and  wages- 
do  not  increase.  Wages  can  not  increase  ;  for,  the  greater 
the  earnings  of  labor,  the  greater  the  price  that  labor  must 
pay  out  of  its  earnings  for  the  opportunity  to  make  any  earn- 
ings at  all.  The  mere  laborer  has  thus  no  more  interest  in  the 
general  advance  of  productive  power  than  the  Cuban  slave 
has  in  advance  in  the  price  of  sugar.  And  just  as  an  advance 
in  the  price  of  sugar  may  make  the  condition  of  the  slave 
worse,  by  inducing  the  master  to  drive  him  harder,  so  may  the 
condition  of  the  free  laborer  be  positively,  as  well  as  relatively,, 
changed  for  the  worse  by  the  increase  in  the  productive  power 
of  his  labor.  For,  begotten  of  the  continuous  advance  of  rents,, 
arises  a  speculative  tendency  which  discounts  the  effect  of 
future  improvements  by  a  still  fui'ther  advance  of  rent." 

508.  The  Second  Count  of  the  Indictment — The  last  sen- 
tence introduces  Mr.  George's  second  count  in  his  arraignment 
of  rent,  as  the  great  social  criminal. 

Please  carefully  to  note  the  point.  The  necessary,  immedi- 
ate and  direct  effect  of  any  addition,  from  whatever  source, 
to  the  productive  power  of  labor,  is  to  increase  rents  by  just 
that  amount,  so  that  nothing  is  left  to  go  either  into  enhanced 
wages  or  enhanced  profits,  the  landlord  taking  the  entire 
increase,  whatever  that  may  be. 

But  now  another  force  enters,  actually  to  deplete  the 
already  starving  laborer.  This  is  the  speculative  advance  in 
land,  owing  to  the  expectation  of  further  increments  of  value 
at  the  expense  of  the  community. 

"  We  have,"  says  Mr.  George,  "  hitherto  assumed,  as  is  gen- 
erally assumed  in  elucidations  of  the  theory  of  rent,  that  the 
actual  margin  of  cultivation  always  coincides  with  what  may- 
be termed  the  necessary  margin  of  cultivation, — that  is  to- 
say,  we  have  assumed  that  cultivation  extends  to  less  produc- 
tive points  only  as  it  becomes  necessary  from  the  fact  that 
natural  opportunities  are  at  the  more  productive  points  fully 


422  POLITICAL  ECONOMY. 

utilized.  This,  probably,  is  the  case  in  stationary  or  very 
slowly  progressing  communities  ;  but  in  rapidly  progressing 
communities,  where  the  swift  and  steady  increase  of  rent 
gives  confidence  to  calculations  of  further  increase,  it  is  not 
the  case.  In  such  communities,  the  confident  expectation  of 
increased  prices  produces,  to  a  greater  or  less  extent,  the  effects 
of  a  combination  among  land-holders,  and  tends  to  the  with- 
holding of  land  from  use,  in  expectation  of  higher  prices,  thus 
forcing  the  margin  of  cultivation  farther  than  required  by  the 
necessities  of  production." 

509.  The  Third  Count.— But  this  is  not  the  end  of  the  mis- 
chief attending  the  private  ownership  of  land.  We  have  now 
the  third  and  final  count  in  this  arraignment.  The  specula- 
tive holding  of  land,  just  described,  becomes,  in  turn,  the 
cause  of  incessant  industrial  disturbance,  and  of  those  great 
periodic  convulsions  of  production  and  trade  which  involve 
the  laboring  classes,  poor,  inert,  and  unapt  to  travel  or  to 
change  of  occupation,  in  the  deepest  distress. 

"  Production,"  says  Mr.  George,  in  explanation  of  an 
assumed  industrial  crisis,  "  has  somewhere  been  checked,  and 
this  reduction  in  the  supply  of  some  things  has  shown  itself 
in  cessation  of  demand  for  others,  the  check  propagating 
itself  through  the  whole  framework  of  industry  and  exchange. 
Wow,  the  industrial  pyramid  manifestly  rests  on  the  land. 

"  The  primary  and  fundamental  occupations,  which  create 
a  demand  for  all  others,  are  evidently  those  which  extract 
wealth  from  nature,  and  hence,  if  we  trace  from  one  exchange 
point  to  another,  and  from  one  occupation  to  another,  this 
check  to  production,  which  shows  itself  in  decreased  purchas- 
ing power,  we  must  ultimately  find  it  in  some  obstacle  which 
checks  labor  in  expending  itself  on  land. 

"  And  that  obstacle,  it  is  clear,  is  the  speculative  advance  in 
rent,  or  the  value  of  land,  which  produces  the  same  effects  as 
(in  fact,  it  is)  a  lock-out  of  labor  and  capital  by  landowners. 
This  check  to  production,  beginning  at  the  basis  of  interlaced 
industry,  propagates  itself  from  exchange  point  to  exchange 
point,  cessation  of  supply  becoming  failure  of  demand,  until, 
.so  to  speak,  the  whole  machine  is  thrown  out  of  gear,  and  the 


MR.    GEORGE'S    VIEW   OF  RENT.  425 

spectacle  is  everwhere   presented   of   labor  going  to   waste 
while  laborers  suffer  from  want." 

510.  This  concludes  Mr  George's  arraignment  of  private 
property  in   land.*     If   these    successive  counts  can  be  sus- 
tained, he  is  fully  borne  out  in  his  conclusion  that  "  the  neces- 
sary result  of  material  progress — land  being  private  property 
— is,  no  matter  what  the  increase  in  population,  to  force  labor- 
ers to  wages  which  give  but  a  bare  living  ; "  or,  as  he  else- 
where expresses  it,  that    "material  progress  does  not  merely 
fail    to  relieve  poverty,  it  actually  produces  it ; "  or,  again, 
that,    "  whatever  be  the  increase  of   productive   power,  rent 
steadily  tends  to  swallow  up  the  gain  and  more  than  the  gain /" 
or,  again,  that  "  the  ownership  of  the  land  on  which  and  from 
which  a  man  must  live,  is   virtually   the    ownership   of  the 
man  himself,  and  in  acknowledging  the  right  of  some  individ- 
uals to  the  exclusive  use  and  enjoyment  of  the  earth,  we  con- 
demn other  individuals  to  slavery,  as  fully  and  as  completely 
as  though  we  had  formally  made  them  chattels." 

To  a  man  who  believed  but  a  small  fraction  of  this,  the  con- 
clusion which  Mr.  George  announces  at  the  close  of  the  follow- 
ing paragraph  would  appear  irresistible  : — 

"  As  long  as  this  institution  exists,  no  increase  in  productive 
power  can  permanently  benefit  the  masses,  but,  on  the  con- 
trary, must  tend  to  still  further  depress  their  condition.  .  .  . 
Poverty  deepens  as  wealth  increases,  and  wages  are  forced 
down  while  procuctive  power  grows,  because  land,  which  is- 
the  source  of  all  wealth  and  the  field  of  all  labor,  is  monopolized. 
To  extirpate  poverty,  to  make  wages  what  justice  commands 
they  should  be,  the  full  earnings  of  the  laborer,  we  must  there- 
fore substitute  for  the  individual  ownership  of  land  a  common 
ownership." 

511.  Examination    of  Mr.    George's    Propositions.— I 
believe  I  have  presented,  in  the  foregoing  extracts,  every  essen- 
tial feature   of  Mr.  George's  economic  system,  without  sup- 
pression or  perversion.     Let  us  now  take  up,  in  inverse  orderr 


*  The  paragraphs  following  are  condensed  from  my  work,  Land  and 
Its  Rent. 


424  POLITICAL   ECONOMY. 

Mr.  George's  three  capital  propositions.  And,  first,  how  much 
is  there  in  the  view  that  commercial  disturbance  and  industrial 
depression  are  chiefly  due  to  the  speculative  holding  of 
land? 

That  land,  in  its  own  degree,  shares  with  other  species  of 
property  in  the  speculative  impulses  of  exchange,  is  a  matter 
of  course.  Every  body  knows  it ;  no  one  ever  thought  of 
denying  it.  Mr.  George  makes  no  point  against  private  prop- 
erty in  land,  however,  unless  he  can  show  that  it  is,  of  all 
species  of  property,  peculiarly  the  subject  of  speculative 
impulses.  Now,  this  is  so  far  from  being  either  self-evident  or 
established  by  adequate  induction,  that  the  contrary  is  the 
general  opinion  of  economic  writers.  Of  all  species  of  prop- 
erty, land,  especially  agricultural  land,  starts  latest  and  stops 
earliest  in  any  upward  movement  of  prices,  as  induced,  for 
instance,  by  a  paper-money  inflation,  which  perhaps  affords 
the  best  opportunity  for  the  study  of  purely  speculative 
impulses. 

512.  We  now  come  to  Mr.  George's  second  count.  The 
allegation  that  the  enhancement  of  the  value  of  land,  above 
what  should  be  regarded  as  the  capitalized  value  of  its  present 
prou active  or  income-yielding  power,  withdraws  large  bodies 
of  land  from  cultivation,  thus  driving  labor  and  capital  to 
poorer  and  more  distant  soils,  in  order  to  secure  the  needed 
subsistence  of  the  community,  can  only  be  characterized,  so 
far  as  all  the  agricultural*  uses  of  land  are  concerned,  as  a 
baseless  assumption,  for  which  not  a  particle  of  proper  statis- 
tical proof  can  be  adduced,  and  which  is  directly  contrary  to 
the  reason  of  the  case. 

Because,  forsooth,  a  man  is  holding  a  tract  of  land  in  the 
hope  of  a  rise  in  its  value,  years  hence,  does  that  constitute 
any  reason  why  he  should  refuse  to  rent  it,  this  year  or  next, 
and  get  from  it  what  he  can,  were  it  no  more  than  enough  to 
pay  his  taxes  and  a  part  of  the  interest  on  the  money  borrowed 
to  "  carry"  the  property  ?  How  unreasonable  to  assume  that 

*  It  will  be  observed  that  in  the  extracts  quoted  it  is  cultivation  which 
is  spoken  of. 


MR.    GEORGE'S   VIEW  ON  RENT.  425 

men  owning  good  productive  land  will  refuse  to  allow  it  to 
be  cultivated  now,  simply  because  they  can  not  get  for  it 
a  rent  which  corresponds  to  what  they  look  forward  ulti- 
mately to  realize  as  its  capital  price  ! 

Undoubtedly  the  speculative  treatment  of  building  lots  does 
cause  a  certain  amount  of  city  real  estate  to  be  held  out  of 
use.  Nobody  needed  Mr.  George  to  tell  him  this  ;  but  that 
the  amount  of  land  so  reserved  is  such  as  seriously  to  retard 
the  development  of  population,  trade,  or  manufactures,  except 
in  a  craze  like  that  which  seized  the  people  of  San  Francisco 
in  1868,*  seems  highly  improbable. 

513.  Progress  and  Poverty  ?— Let  us  now  proceed  to  deal 
with  Mr.  George's  main  proposition,  the  proposition  to  which 
the  others  are  subsidiary.  If  this  be  established,  it  really  does 
not  matter  much  whether  the  others  are  true  or  not,  since  the 
•condition  of  humanity  under  the  grinding  pressure  of  this  main 
force  will  be  about  as  bad  as  it  could  be  ;  while,  if  this  be  dis- 
pi'oved,  Mr.  George's  whole  system  must  break  down  ridiculous- 
ly, leaving  it  to  matter  little  whether  the  minor  evils  attributed 
to  the  private  ownership  of  land  be  found  to  have  any  real 
existence  or  not.  This  it  is  which  constitutes  the  original 
feature  of  Mr.  George's  book,  the  proposition,  namely,  that, 
"irrespective  of  the  increase  in  population,  the  effect  of 
improvements  in  methods  of  production  and  exchange  is  to 
increase  rent  ; "  this  effect  being  carried  so  far  that  "  all  the 
advantages  gained  by  the  march  of  progress  go  to  the  owners 
of  land,  and  wages  do  not  increase,"  the  laboring  man  having 
"  no  more  interest  in  the  general  advance  of  productive  power 
than  the  Cuban  slave  has  in  advance  in  the  price  of  sugar," 
capital  also,  in  its  turn,  suffering,  and  to  an  equal  extent, 
since,  as  Mr.  George  states,  the  effect  of  labor-saving 
machinery  or  improvements  is  to  increase  rent  without 
increasing  either  wages  or  interest. 

*This  episode,  consequent  on  the  fast  approaching  completion 
of  the  first  trans-continental  railway,  appears  to  have  profoundly 
affected  Mr.  George's  mind,  and  have  produced  in  him  the  belief  that 
what  there  and  then  took  place,  under  extraordinary  circumstances,  is  8 
-common  incident  of  land  ownership. 


426  POLITICAL  ECONOMY. 

Now  this  is  not  only  false,  but  ridiculously  false,  blunder 
being  piled  on  blunder,  to  reach  a  conclusion  so  monstrous. 

514.  In  the  first  place,  the  proposition   is  contradicted  by 
plain  facts  of  common    observation   and  by  unimpeachable 
testimony  of  industrial  statistics.     The  laborer  has  gained  in 
wages  through  the  labor-saving  inventions  and  improvements 
of  modern  times.     Speaking  of   England,    Sir  James  Caird 
says  :  "  The  laborer's  earning  power  in  procuring  the  staff  of 
life  cost  him  five  days'  work  to  pay  for  a  bushel  of  wheat 
in  1770,  four  days'  in  1840,  and  two  and  a  half  days'  in  1870." 
So  much  for  bread.      "Thirty  years  ago,"  says  Sir  James, 
"  probably  not  otie-third  of  the  people  of  this  country  con- 
sumed animal  food  more  than  once  a  week.     Now,  nearly  all 
of  them  eat  it  in  meat  or  cheese  or  butter,  once  a  day."     The 
same  high  authority  adds  :    "  The  laborer  is  better  lodged 
than  he  ever  was  before."     We  need  no  one  to  tell  us  that 
the  laborer's  power  to  purchase  manufactured  articles  has 
increased,  since  1770,  much  more  rapidly  than  his  power  to 
purchase  agricultural  produce,  whether  animal  or  vegetable. 

To  the  assertion  of  Mr.  George  that  even  the  capitalist  gains 
nothing  by  inventions  and  improvements  in  the  agencies  of 
trade  or  manufactures,  because  the  landlord  usurps  and  absorbs 
all  possible  increase  of  productive  power,  what  better  answer 
can  we  give  than  that  of  Professor  Emile  de  Laveleye,  himself 
a  qualified  advocate  of  the  state  ownership  of  land  ? 

"  Who  occupy  the  pretty  houses  and  villas  which  are 
springing  up  in  every  direction  in  all  prosperous  towns  ?  Cer- 
tainly, more  than  two-thirds  of  these  occupants  are  fresh 
capitalists.  The  value  of  capital  engaged  in  industrial  enter- 
prise exceeds  that  of  land  itself,  and  its  power  of  accumulation 
is  far  greater  than  that  of  ground  rents.  .  .  .  We  see,  then, 
that  the  increase  of  profits  and  of  interest  takes  a  much  larger 
proportion  of  the  total  value  of  labor,  and  is  a  more  general 
and  powerful  cause  of  inequality,  than  the  increase  of  rent."  ! 

515.  So  much  for  industrial  statistics  and  facts  of  common 
observation.     Let  us  now  turn  to  the  reason  of  the  case.    And, 

*  "  Contemporary  Review,"  November,  1882. 


MR.    GEORGE'S    VIEW  OF  KENT.  427 

first,  let  us  recite  Mr.  George's  own  argument.  "  The  effect," 
he  says,  "  of  labor-saving  improvements  will  be  to  increase 
the  production  of  wealth.  Now,  for  the  production  of  wealth, 
two  things  are  required — labor  and  land.  Therefore  the  effect 
of  labor-saving  improvements  will  be  to  extend  the  demand 
for  land." 

A  pretty  piece  of  reasoning  this  !  Two  things  are  needed 
for  the  production  of  wealth,  land  and  labor  ;  therefore  an 
increase  of  production  will  "  extend  "  the  demand  for  land,  for- 
sooth !  But  why  not  also  for  labor,  since  both  are  concerned 
in  production  ? 

But  Mr.  George  is  further  in  error,  even,  than  would  so  far 
appear.  He  has  got  the  thing  exactly  wrong.  It  is  not  only 
true  that  an  increased  production  of  wealth  may  involve  an 
enhanced  demand  for  labor  as  well  as  for  land  ;  but  it  is  also 
incontestably  true  that  the  increased  production  of  wealth 
rarely  if  ever  causes  an  increased  demand  for  land  without  a 
corresponding  demand  for  labor,  while,  on  the  contrary,  an 
increased  production  of  wealth  may  cause  an  enormous  increase 
in  the  demand  for  labor  without  enhancing  the  demand  for 
the  products  of  the  soil  in  any  degree  whatsoever. 

Here  is  a  pound  of  raw  cotton,  the  production  of  which 
makes  a  certain  demand,  or  drain,  upon  the  land.  To  that 
cotton  may  be  applied  the  labor  of  one  operative  for  half  an 
hour,  worth,  say,  five  cents.  Successive  demands  for  the  pro- 
duction of  wealth  may  lead  to  the  application  of,  first,  a  full 
hour's  labor,  then  of  two  hours',  then  of  three,  four,  or  five  ; 
finer  and  finer  fabrics  being  successively  produced,  until  at 
last  the  pound  of  cotton  has  been  wrought  into  the  most 
exquisite  articles.  Mr.  George  says  that  the  whole  effect  of 
any  increase  in  the  production  of  wealth  is  to  enhance  the 
demand  for  land.  Here  is  a  large  in'ci'ease  of  production,  two- 
fold, threefold,  tenfold,  with  no  additional  demand,  or  drain, 
upon  the  soil. 

516.  But  I  go  further,  and  assert,  without  fear  of  contra- 
diction, that  not  only  is  no  increase  in  the  demand  for  land 
necessarily  involved  in  an  increased  production  of  wealth,  but 
that  the  enhancement  of  the  demand  for  land,  in  the  progress 


428  POLITICAL  ECONOMY. 

of  society,  habitually  falls  short  of  the  enhancement  of  the 
demand  for  labor,  the  increase  of  production  taking  two  great 
forms, — one  which  involves  no  increase  whatever  in  the 
materials  derived  from  the  soil ;  the  other  in  which  the 
increased  demand  for  land  falls  short,  generally  far  short, 
often  almost  infinitely  short,  of  the  increased  demand  for 
labor. 

Let  us  look  around.  I  have  cited  one  instance,  that  of  the 
use  made  in  the  mill  of  a  pound  of  cotton,  manufactured 
successively  into  fabrics  worth,  perhaps,  twenty  cents  a  pound, 
then  thirty,  then  fifty,  then  one  dollar.  This  is  not  an 
extreme  case. 

Here  is  the  rude  furniture  of  a  laborer's  cottage,  worth 
perhaps  $30.  The  same  amount  of  wood  may  be  made  into 
furniture  worth  $200  for  the  home  of  the  clerk,  or  into 
furniture  worth  $2,000  for  the  home  of  the  banker.  The  steel 
that  would  be  needed  to  make  a  cheap  scythe  worth  eighty  cents 
may  be  rendered  into  watch-springs,  or  surgical  or  philo- 
sophical instruments  worth  $100  or  $200.  A  gentleman  of 
means  goes  to  Delmonico's,  and  pays  two,  three  or  five  dollars 
for  a  dinner  which  makes  no  heavier  drain  upon  the  productive 
essences  of  the  soil  than  a  dinner  of  corned  beef  and  cabbage 
for  which  a  laborer  pays  twenty-five  cents.  A  part  of  the 
difference  between  the  prices  of  the  two  dinners,  to  be  sure, 
represents  the  cost  of  an  expensive  business  "  stand  "  on  Fifth 
Avenue  ;  but  by  far  the  greater  part  represents  service  of  one 
kind  or  another,  at  one  stage  or  another,  in  making  the  dishes 
exquisite  in  appearance  and  flavor,  in  serving  them  neatly  and 
elegantly  with  all  the  appliances  of  taste  and  fashion.  Our 
gentleman,  before  dining,  had  perhaps  been  measured  for  a 
pair  of  boots  for  which  he  was  to  pay  $12  or  $15,  yet  con- 
taining no  more  leather,  and  so  making  no  more  draught  upon 
the  productive  essences  of  the  soil,  in  the  way  of  nourishing 
the  animal  from  which  the  leather  was  cut,  than  the  laborer's 
$3  pair  of  "  stogies  "  ;  he  had  also  ordered  a  suit  of  clothss  for 
$60  or  $75,  at  his  tailor's,  no  thicker,  no  warmer,  containing 
no  more  fiber,  than  the  laborer's  $15  tweeds.  In  all  these 
cases  (and  they  fairly  represent  the  facts  of  personal  con 


MR.    GEORGE'S    VIEW  OF  RENT.  429 

surtiption  in  modern  society)  the  main  cause  for  the  excess  of 
value  in  products  of  higher  price  is  not  the  use  of  a  larger 
quantity  of  material,  involving  a  greater  demand  or  drain  upon 
the  productive  essences  of  the  soil,  but  the  application  of 
™,ore  labor  to  the  same  quantity  of  material. 

517.  How  Far  Mr.  George  is  in  Error. — In  contradiction, 
then,  of  Mr.  George's  proposition  that  the  entire  effect  of  an 
increase  of  production  is  expended  in  raising  rents,  neither 
wages  nor  the  interest  of  capital  deriving  any  gain  whatsoever 
therefrom,  rent  indeed  absorbing  the  entire  gain,"  and  more  than 
the  gain,"  we  have  seen, — 

1.  That  an  increase  of  production  way  enhance  the  demand 
for  labor  equally  with  the  demand  for  land. 

2.  That,   in   fact,    in   those   forms   of    production   which 
especially  characterize  modern  society,  the  rate  of  enhancement 
of  the  demand  for  labor  tends   to  far  exceed  the  rate    of 
enhancement  of  the  demand  for  land. 

3.  That  an  increased  demand  for  the  production  of  wealth 
may,   and  in   a   vast  body  of   instances   does,    enhance   the 
demand  for  labor  without  enhancing  the  demand  for  land  in 
any,  the  slightest,  degree,  the  whole  effect  being  expended  in 
the  elaboration  of  the  same  amount  of  material. 

4.  We  have  now  only  to  show,  in  the  fourth  place,  that, 
instead  of  all  improvements  and   inventions   increasing   the 
demand  for  land,  as  Mr.  George  declares,  the  most  numerous 
and  most  important  classes  of  improvements  and  inventions 
actually  operate  powerfully,  directly,  and  exclusively,  in  reduc- 
ing the  demand  for  land, — we  have,  I  say,  only  to  show  this,  to 
convict  this  writer  of  the  grossest  incompetence  for  economic 
reasoning.     This  it  will  be  easy  to  do. 

518.  Influence,  upon  Rents,  of  Improvements  in  Trans- 
portation.— With    few    exceptions,    all    improvements    and 
inventions    fall    naturally    under   one    or  another  of    three 
great  classes, — first,  those  which  affect  manufacturing  indus- 
try ;  second,  those  which  affect  transportation  ;  third,  those 
which  affect  the  cultivation  of  the  soil. 

Of  these  three  classes  it  has  always  been  admitted  by  econ- 
omists that  the  first  tends  to  enhance  the  demand  for  land, 


430  POLITICAL  ECONOMY. 

and  thus  to  raise  rents,  although,  as  we  have  just  now  seen, 
not  necessarily,  or  indeed  usually,  without  also  enhancing  the 
demand  for  labor  and  capital,  and  thus  raising  wages  and 
interest.  The  two  remaining  classes  of  improvements  and 
inventions  tend  directly,  and  indeed  operate  exclusively,*  to 
reduce  the  demand  for  land,  leaving,  thus,  the  whole  advan- 
tage of  such  improvements  and  inventions  to  be  acquired  by 
either  labor  or  capital,  or,  in  one  proportion  or  another,  by 
both  labor  and  capital. 

And,  first,  of  improvements  in  transportation.  I  need  not 
waste  time  in  calling  to  mind  the  mighty  strides  which  inven- 
tion has  made,  during  the  past  fifty  years,  in  this  direction, 
substituting  for  the  sailing  vessel  of  400  tons,  which  carried 
its  petty  cargo  of  wheat  in  forty  or  sixty  days  from  New 
York  to  Liverpool,  the  steamship  of  5,000  tons,  which  makes 
the  passage  in  nine  days  or  twelve  ;  substituting  for  the  tedi- 
ous wagon  carriage  which  in  forty  or  fifty  miles,  perhaps  in 
twenty  or  thirty  only,  ate  up  the  whole  value  of  the  freight, 
carriage  by  steam  cars,  drawrn  on  steel  rails,  which,  allowing 
for  transport  from  Dakota  to  New  York,  leaves  enough  of  the 
value  of  the  freight  to  pay  for  the  ocean  passage  and  for  the 
support  of  the  producer  upon  those  distant  plains.  Add  the 
telegraph  and  the  fast  mail,  for  transmitting  orders  and  trans- 
acting sales,  and  one  will  hardly  question  the  assertion  that 
the  greatest  of  all  the  classes  of  improvements  and  inventions 
effected  within  the  last  half -century,  has  been  that  which 
relates  to  transportation. 

Is  it  the  effect  of  improvements  of  this  class  to  enhance 
rents?  Absolutely  and  exclusively  the  reverse.  Whatever 
quickens  and  cheapens  transport,  acts  directly  in  the  reduction 
of  rents,  and  can  not  act  in  any  other  way,  since  it  throws  out 
of  cultivation  the  poorer  lands  previously  in  use  for  the  supply 
of  the  market,  enabling  the  better  soils  at  a  distance  to  take 
their  place,  thus  raising  the  lower  limit,  or,  as  it  is  called,  the 
"  margin  "  of  cultivation,  and  thus  reducing  rents. 

*  "  Irrespective  of  the  increase  of  population,"  to  use  Mr.  George's  own 
voluntary  qualification. 


MR.    GEORGE'S    VIEW  OF  RENT.  431 

519.  Influence,  upon  Rents,  of  Improvements  in  Agricul- 
ture.— But,  secondly,  take  the  case  of  agricultural  improve- 
ments and  inventions.     Here  the  effect  on  rents  is  not  so  sim- 
ple.    Yet  it  is  perfectly  demonstrable  that,  of  the  two  groups  * 
into  which  such  inventions  or  improvements  are  divided,  all 
of  one  kind  diminish  rent  in  a  certain  degree,  while  all  of  the 
otter  kind  diminish  it  in  a  much  higher  degree. 

The  two  kinds  of  agricultural  improvements  and  inventions 
referred  to  are  : 

First,  those  which  do  not  actually  increase  the  amount  of 
produce,  but  diminish  the  labor  and  expense  by  which  that 
amount  is  obtained,  such  as  the  improved  construction  of 
tools,  or  the  introduction  of  new  instruments  which  spare 
manual  labor. 

Second,  those  which  enable  the  land  to  yield  a  greater 
absolute  produce,  such  as  the  disuse  of  fallows  by  means  of 
the  rotation  of  crops,  the  introduction  of  new  vegetable  species, 
the  introduction  of  new  and  more  powerful  fertilizing  agents 
or  a  better  application  of  familiar  manures,  and  mechanical 
inventions,  like  sub-soil  plowing  or  tile-draining. 

Now,  improvements  or  inventions  of  the  first  class,  as,  by 
the  supposition,  they  do  not  increase  the  produce  of  the  land, 
so  they  do  not,  supposing  them  to  be  equally  applicable  to  all 
grades  of  soil,  diminish  the  share  of  that  produce  going  to  the 
landlords  as  rent.  But  while  the  actual  number  of  pounds, 
bushels,  etc.,  of  agricultural  products  going  to  the  owners  of 
the  soil  remains  the  same,  in  the  face  of  such  improvements 
and  inventions,  those  products  are  cheapened  through  the  sav- 
ing of  labor  in  their  production.  Thus,  while  rents  remain  the 
same,  in  kind,  their  money  value,  or  power  to  purchase  the 
products  of  other  branches  of  industry  or  the  services  of  other 
classes  of  producers,  is  diminished  in  just  so  far  as  such 
improvements  are  effectual. 

5 2O.  Next,  it  is  clear  that  those  agricultural  improvements 
and  inventions  which  enable  a  given  area  to  yield  a  greater 
quantity  of  produce,  act  even  more  directly  in  diminution  of 

*  As  justly  characterized  by  Mr.  J.  S.  Mill. 


43 2  POLITICAL  ECONOMY. 

rent.  Take,  for  illustration,  the  disuse  of  fallows  by  rotation 
of  crops.  Formerly  it  was  thought  necessary  to  let  even  the 
best  land  lie  out  of  cultivation  one  year  in  three  or  four.  On 
the  contrary,  it  is  now  perfectly  established  that,  if  crops  be 
duly  varied,  land  may  be  continuously  cultivated  without 
exhaustion.  It  is  evident  that  this  discovery  is  equivalent  to 
increasing  the  capacity  of  any  tract  by  one-half  or  one-third  : 
so  that,  for  a  given  amount  of  agricultural  produce  required 
for  the  sustentation  of  the  community  and  for  the  raw  mate- 
rials of  manufacture,  such  an  improvement  would  allow  vast 
bodies  of  the  poorer  grades  of  soil  to  be  thrown  out  of  cultiva- 
tion, thus  diminishing  (paragraph  257)  the  aggregate  amount 
to  be  received,  as  rents,  by  landlords,  in  that  community.  A 
similar  effect,  in  a  greater  or  less  degree,  would  be  produced  by 
the  introduction  of  new  and  more  powerful  fertilizers,  or  by 
sub-soil  plowing  and  under-drainage. 

521.  Summing  up. — We  thus  see  that  all  real  agricultural 
inventions  and  improvements  tend,  as  all  improvements  and 
inventions  in  transportation  tend,  directly  and  exclusively,  to 
diminish  rents.  So  that  of  the  three  grand  classes  into  which 
industrial  improvements  and  inventions  are  divided,  two  act  in 
a  direction  exactly  opposite  to  that  in  which  Mr.  George  ;s 
theory  would  require  them  to  act.  Of  the  third  grand  class  of 
improvements  and  inventions,  viz.,  those  relating  to  manufac- 
tures, we  have  admitted  that  some  do,  by  calling  for  larger 
amounts  of  raw  material,  enhance  the  demand  for  land  ;  but 
we  have  shown,  that  in  these  very  cases,  the  increase  in  the 
demand  for  labor  is  almost  always  equal  to  the  increase  in  the 
demand  for  land,  is  often  greater,  is  sometimes  vastly  greater. 
We  have,  also,  shown  that  there  are  other,  still  more  numerous 
and  more  important,  improvements  and  inventions  in  manufac- 
tures which  do  not  enhance  the  land  in  any  degree,  while  they 
call  for  greater  and  still  greater  applications  of  labor  to  the 
same  amounts  of  material. 

Can  any  thing  more  be  required  to  show  how  groundless  and 
preposterous  is  the  view  of  the  hitherto  unsuspected  import- 
ance of  rent  as  a  factor  in  the  distribution  of  wealth,  which 
Mr.  George  has  presented  as  a  marvelous  discovery  in  econ- 


THE  BANKING  FUNCTIONS.  433 

omics,  and  upon  which  he  has  built  his  pretentious  super- 
structure :  the  necessary  relation  of  Progress  to  Ever  Increas- 
ing Poverty  ?  That  such  an  argument  should  for  a  moment 
have  imposed  upon  anybody,  is  enough  to  give  one  a  new  con- 
ception of  the  intellectual  capabilities  of  mankind. 

XI. 

THE   BANKING   FUNCTIONS. 

522.  "  The  trade  or  profession  of  banking,"   says   Lord 
Liverpool,  "  has  been  exercised  in  all  countries  and  all  ages. 
It  existed  in  the  republic  of  Greece  and  in  ancient  Rome. 
There  were,  in  all  these  States,  men  who  received  money  as  a 
deposit,  repaid  it  upon  the  drafts  of  those  who  had  intrusted 
them  with  it,  and  derived  their  profits  from  having  this  money 
in  their  custody." 

1st.  Financiering. — In  modern  times,  the  first  banks  appear 
in  Italy.  Mr.  Bagehot  states  that  the  earliest  of  these  "  were 
finance  companies.  The  Bank  of  St.  George,  at  Genoa,  and 
other  banks  founded  in  imitation  of  it,  were  at  first  only  com- 
panies to  make  loans  to,  and  to  float  loans  for,  the  govern- 
ments of  the  cities  in  which  they  were  founded." 

"  Financiering,"  then,  may  be  regarded  as  the  first  banking 
function  developed,  in  modern  times.  In  the  reign  of  William 
and  Mary  certain  capitalists  made  a  loan  of  £1,200,000  to  the 
English  government,  receiving,  in  consideration  therefor,  a 
charter  constituting  them  the  Governor  and  Company  of  the 
Bank  of  England.  Robert  Morris's  Bank  of  North  America 
had  a  very  similar  origin.  Under  the  present  National  Bank- 
ing system  of  the  United  States,  the  bank  begins  by  lending 
all,  or  nearly  all,  its  capital  to  the  government.  The  great 
war  loans  of  the  United  States,  1861-5,  were,  in  the  main, 
"  floated  "  by  the  banks. 

523.  2d.  Book  Credits  of  the  Bank  of  Amsterdam. — The 
next  banking   function   historically   developed   was   that  of 
giving  the  people  good  money  in  place  of  a  medley  of  worn 
and  clipped  coins,  of  a  great  diversity  of  coinages,  belonging 


434  POLITICAL   ECONOMY. 

to  many  nations.     It  was  to  serve  this  office  that  the  banks  of 
Northern  Europe  were  created. 

"Before  1609,"  says  Adam  Smith,  "the  great  quantity  of 
clipped  and  worn  foreign  coin  which  the  extensive  trade  of 
Amsterdam  brought  from  all  parts  of  Europe,  reduced  the 
value  of  its  currency  about  9  cer  cent,  below  that  of  good 
money,  fresn  irom  tne  mini,  eucn  money  no  csoouer  <*jjpcc*red 
than  it  was  melted  down  or  carried  away,  as  it  always  is  in 
such  circumstances.*  The  merchants,  with  plenty  of  currency, 
could  not  always  find  a  sufficient  quantity  of  good  money  to 
pay  their  bills  of  exchange  ;  and  the  value  of  those  bills,  in 
spite  of  several  regulations  which  were  made  to  prevent  it, 
became  in  a  great  measure  uncertain. 

"  In  order  to  remedy  these  inconveniences,  a  bank  was 
established,  in  1609,  under  the  guarantee  of  the  city.  This 
bank  received  both  foreign  coin  and  the  light  and  worn  coin 
of  the  country,  at  its  real  intrinsic  value  in  the  good  standard 
money  of  the  country,  deducting  only  so  much  as  was  neces- 
sary for  defraying  the  expense  of  coinage  and  the  other  neces- 
sary expenses  of  management.  For  the  value  which  remained 
after  this  small  deduction  was  made,  it  gave  a  credit  on  its 
books.  This  credit  was  called  bank-money,  which,  as  it  rep- 
resented money  exactly  according  to  the  standard  of  the  mint, 
was  always  of  the  same  real  value,  and  intrinsically  worth 
more  than  current  money.  It  was  at  the  same  time  enacted 
"  that  all  bills  drawn  upon  or  negotiated  at  Amsterdam,  of 
the  value  of  60  guilders  or  upwards,  should  be  paid  in  bank 
money,  which  at  once  took  away  all  uncertainty  in  the  value 
of  those  bills." 

It  will  be  observed  that  Adam  Smith  calls  these  credits 
inscribed  upon  the  books  of  the  Bank  of  Amsterdam,  "  bank- 
money  ; "  but  this  money,  if  it  is  to  be  called  so,  will  be  seen 
to  differ  widely  from  the  bank  money  of  to-day,  already 
described  :  1st.  It  did  not  circulate  from  hand  to  hand,  as 
the  ordinary  medium  of  effecting  exchanges  ;  2d.  It  was 
never  in  excess  of  the  amount  of  metallic  money  actually  in 
\he  vaults  on  deposit. 

*  See  statement  of  Gresham's  Law,  par.  181. 


THE  BANKING  FUNCTIONS.  435 

524.  3d.  Cancellation  of  Indebtedness. — The  next  banking 
function,  which  we  are  called  upon  to  notice,  is  the  Cancel- 
lation of  Indebtedness. 

An  enormous  volume  of  indebtedness  at  all  times  exists  in 
any  highly  progressive  country,  which  has  to  be  paid  and 
renewed  from  day  to  day.  The  labor  and  loss  of  time 
involved  in  collecting  debts  and  paying  moneys,  with  the 
probable  delay  and  disappointment  involved  therein,  would 
be  almost  intolerable  unless  some  special  agency  were  estab- 
lished for  doing  this  work  upon  a  large  scale  and  with  all  the 
advantages  which  we  have  found  to  result  from  the  appli- 
cation of  the  division  of  labor.  This  function  the  bank 
performs. 

If,  in  any  great  city,  many  banks  are  required  to  cany  on 
this  function,  these  banks,  in  turn,  establish  a  common  agency 
for  settling  their  mutual  obligations,  called  a  Clearing  House.* 

The  transactions  of  such  an  institution  in  New  York  or 
London  may  amount  to  thirty  or  forty  thousand  millions  of 
dollars  a  year.  This  vast  body  of  indebtedness  is  adjusted 
through  the  labor  of  a  hundredth  part  as  many  clerks  and 
messengers,  and  the  use  of  a  hundredth  part  as  much  actual 
money  as  would  have  been  required,  had  each  person  who  had 
money  owing  to  him  been  obliged  to  attend  to  the  collection 
himself,  or  through  his  own  clerks  or  messengers. 

525.  4th.  Exchange.— The   next  banking   function    is  to 
remit  money  and  conduct  exchange. 

What  is  termed  "  Exchange,"  is  merely  the  principle  of  the 
cancellation  of  indebtedness  between  individuals  of  the  same 
city,  carried  out  to  trading  communities  and  nations.  We 
shall  speak,  under  a  subsequent  title,  of  the  principles  regulating 
Foreign  Exchanges. 

This  function,  again,  the  bank  to  a  great  extent  performs, 
and  in  so  doing  renders  the  trading  community  an  immense 
service.  If  every  merchant  who  had  to  pay  money  in  another 
city  or  country  were  obliged  to  find  out,  for  himself,  some 

*  The  subject  of  the  Clearing  House  and,  indeed,  all  the  agencies  and 
instrumentalities  of  trade  will  be  found  treated  most  lucidly  and  justly 
in  Prof.  Jevons'  work  "Money  and  the  Mechanism  of  Exchange." 


436  POLITICAL  ECONOMY. 

person  who  had  the  right  to  receive  money  at  that  place,  at 
that  time,  and  perhaps  in  the  same  sum,  an  inconceivable 
amount  of  inconvenience  and  delay,  of  vexation  and  disap- 
pointment, often  resulting  in  commercial  discredit,  would  be 
experienced. 

If  we  may  accept  Mr.  Henry  Thornton's  account  *  of  the 
rise  of  the  country  banks  of  England,  it  was  through  the 
gradual  growth  of  exchange-operations  between  country  shop- 
keepers and  those  of  the  cities,  that  these  institutions  came, 
almost  unnoticed,  into  existence. 

526.— 5th.— Safe  Deposit.— The  fifth  banking  function  is  to 
serve  as  a  place  of  safe  deposit.  Mr.  Francis,  in  his  History  of 
the  Bank  of  England,  attributes  the  rise  of  the  city  banks 
primarily  to  the  need  of  this  service.  In  the  unguarded  and 
unlighted  London  which  Macaulay  so  graphically  describes  in 
his  memorable  Third  Chapter,  robberies  and  burglaries  were 
of  frequent  occurrence.  No  man's  home  was  safe,  if  known  to 
contain  any  considerable  amount  of  treasure,  unless  barricaded 
and  defended  by  armed  servants.  The  goldsmiths,  having  in 
the  way  of  their  trade  to  keep  large  quantities  of  gold  and 
silver,  had  strong  houses  strongly  guarded.  To  them,  men  of 
smaller  means,  private  gentlemen,  or  shopkeepers,  intrusted 
what  they  dared  not  keep  at  home,  paying,  at  first,  for  the 
privilege. 

In  the  course  of  time,  the  goldsmiths  found  that  this  custody 
of  funds  afforded  a  legitimate  opportunity  for  realizing  a  profit, 
through  loaning  some  part  of  these  deposits.  Then  the  deposi- 
tors were  no  longer  required  to  pay  for  the  safe  keeping.  In 
time,  the  bankers  came,  perhaps,  to  pay  interest  on  the 
deposits,  themselves,  which  they  loaned  out  to  others,  at  higher 
rates,  while  the  depositors  received  certificates  of  the  value  of 
what  they  had  left  with  the  goldsmiths.  The  certificates  soon 
began  to  circulate  from  hand  to  hand.  "  These,"  says  Mr. 
Francis,  "may  be  considered  the  first  kind  of  bank  notes 
issued  in  England."  In  this  way  the  goldsmiths'  street  in 
London,  Lombard  Street,  came  to  be  the  bankers'  street,  the 
greatest  banking  street  of  the  world. 

*  In  his  famous  work  on  Paper  Credit,  published  in  1802. 


DEPOSIT  AND  DISCOUNT.  437- 

The  ordinary  bank  is  still,  to  a  great  extent,  a  place  of  safe 
deposit  for  money,  family  jewels,  deeds,  and  bonds,  although 
special  institutions  for  safe  deposit  are  now  found  in  many 
large  cities. 

527.— 6th.  Deposit  and  Discount.— The  sixth  and  the  chief 
of  the  legitimate  functions  of  the  modern  bank  is  to  serve  as 
an  intermediary  in  the  loan  of  capital,  in  aid  of  commerce  and 
manufactures  and  other  private  enterprises,  not  merely  to  loan 
its  own  capital,  as  in  the  case  of  the  Bank  of  Genoa  and  others 
that  have  been  spoken  of,  or  to  conduct  loans  for  government, 
or  for  great  corporations. 

The  technical  terms,  deposit  and  discount,  serve  to  charac- 
terize this  function.  It  is  in  this  way  that  banks  make  their 
largest  contribution  to  the  advancement  of  commerce  and 
industry.  This  office  of  banking  is,  however,  as  much  over- 
rated by  some  as  it  is  underrated  by  others.  Men  who  are  not 
versed  in  economic  principles,  when  they  see  the  wonderful 
effects  wrought  by  gathering  into  one  great  reservoir  the 
wealth  of  ten  thousand  individuals,  much  of  which  would  other- 
wise be  hoarded  or  unwisely  applied,  and  conducting  it  thence, 
as  occasions  require,  in  various  directions,  through  channels 
judiciously  devised  to  secure  the  highest  and  most  effective 
irrigation  of  the  field  of  industry,  are  apt  to  imagine  that  the 
bank  in  some  way  creates  capital.  This  is  a  wholly  mistaken 
notion.  The  bank  adds  to  the  wealth  of  the  community  only 
by  economizing  and  directing  capital  to  the  best  ends. 

So  important  is  this  function  that  most  European  writers, 
when  they  speak  of  banking,  have  only  in  mind  deposit  and 
discount,  all  other  functions  being  held  to  be  minor  and  sub- 
ordinate. 

528. — 7th.  Issue  of  Paper  Money — To  an  American,  how- 
ever, the  word,  banking,  is  more  likely  to  bring  up  the  notion 
of  paper  money.  The  issue  of  such  money  is  the  seventh  and 
the  last  of  the  banking  functions  which  we  have  occasion  to 
consider. 

That  the  making  of  money  is  not  necessarily  connected 
with  deposit  and  discount,  is  abundantly  established  by  the 
consent  of  all  writers  of  authority  in  this  field,  as  well  as  by 


438  POLITICAL  ECONOMY. 

the  example  of  many  of  the  greatest  deposit  banks  of  the 
world.  "  Issuing,"  says  Mr.  Nicholson,  "  is  creating  money  ; 
banking  is  managing  money  after  it  has  been  issued." 

"  A  bank  of  issue,"  says  Lord  Overstone,  "  is  intrusted  with 
the  creation  of  the  circulating  medium  ;  a  bank  of  deposit  and 
discount  is  concerned  only  with  the  use,  distribution  or  appli- 
cation of  that  circulating  medium.  The  principles  upon  which 
these  two  branches  of  business  ought  to  be  conducted  are  per- 
fectly distinct,  and  never  can  be  reduced  to  one  and  the  same 
rule." 

The  great  London  joint-stock  banks,  a  single  one  of  which 
holds  deposits  rising  into  tens  of  millions,  and  whose  ordinary 
dividends  are  three  times  as  great  as  those  of  the  Bank  of 
England,  never  issue  a  note. 

In  this  country,  however,  the  word  bank,  through  much  of 
our  history,  has  to  most  people  signified  little  more  than  a 
place  where  paper  money  was  manufactured. 

529.  The  Banking  Agencies. — Such  are  the  banking  func- 
tions. The  agencies  by  which  the  functions  are  performed 
may  be  grouped  under  four  heads  :  (1),  state  banks  ;  (2), 
joint-stock  banks  ;  (3),  private  banks  ;  (4),  bill-brokers  and 
dealers  in  exchange.  These  agents  enter  in  very  different 
proportions  to  effect  the  banking  work  to  be  done  in  different 
countries.  In  this  country,  so  large  a  part  of  the  banking 
work  was,  from  the  beginning  of  the  country  till  the  outbreak 
of  the  war  of  secession,  done  by  joint-stock  banks,  that  it  may 
be  broadly  said  that  this  was  the  sole  banking  agency  known 
to  our  people,  although,  in  a  few  cities,  private  banking 
houses  of  high  reputation  were  early  started  and  well  main- 
tained, and  the  business  of  bill-broking  was  not  unrecognized. 
Under  another  title,  we  shall  give  a  brief  sketch  of  the  pres- 
ent "  National  Banking  System  "  of  the  United  States. 


XII. 


THE   PRESENT   BANKING   SYSTEM   OF   THE    UNITED   STATES. 

530.— The  National  Banking  System  of  the  TJ.  S.*— 
No  bank,  in  the  modern  sense  of  that  term,  was  established  in 
America  during  the  colonial  period.  The  word,  bank,was  indeed 
sometimes  used,  with  reference,  however,  to  a  batch  of  paper 
money  issued  from  a  colonial  treasury.  During  the  revolu- 
tion the  eminent  financier,  Robert  Morris,  established  a  bank 
in  aid  of  the  continental  finances.  In  1790  there  were  three 
banks  in  the  United  States  ;  the  Bank  of  North  America,  in 
Philadelphia,  established,  as  related,  by  Robert  Morris,  but 
then  under  a  charter  from  the  state  of  Pennsylvania  ;  the 
Bank  of  New  York,  in  the  city  of  that  name  ;  and  the  Bank  of 
Massachusetts,  in  Boston.  In  1791  was  created  the  first  Bank 
of  the  United  States,  with  a  capital  of  ten  millions  of  dollars, 
having  a  charter  for  twenty  years,  with  power  to  issue  notes 
payable  on  demand  in  specie.  So  completely  without  regula- 
tion and  without  inspection  was  the  so-called  paper  money  of 
the  United  States  in  that  period,  that  it  is  impossible  to  recover 
the  facts  of  banking  capital,  circulation,  deposits  or  specie. 
Scarcely  a  statistical  fragment  survives.  There  is  reason  to 
suppose  that  the  officers  of  many  banks  did  not  themselves 
know  the  liabilities  of  their  own  institutions.  The  paper 
money  issued  by  such  an  institution,  was,  in  every  economic 
sense,  inconvertible.  The  pretense  of  conversion  could  only 
be  maintained  by  a  stringent  public  opinion,  hostile  to  the 
presentation  of  bank  notes  for  redemption,  by  bank  retalia- 
tions, and  even,  in  frontier  communities,  by  "  lynch  law." 

531.  On  the  refusal  of  Congress  tore-charter  the  bank  of 
the  United  States,  a  large  number  of  the  state  banks  sprang  into 
existence,  almost  all  of  the  usual  American  "  joint-stock  " 
type,  on  the  principle  of  limited  liability.  In  not  a  single 
state  were  the  banks  subject  to  regulation  or  even  supervision, 

*  The  first  part  of  this  article  is  condensed  from  the  twelfth  chapter  of 
my  work  on  Money,  Trade  and  Industry. 


44°  POLITICAL  ECONOMY. 

to  make  sure  that  they  did  their  duty  or  that  they  did  not 
commit  injury.  The  language  of  Mr.  J.  R.  McCulloch,  re- 
garding the  American  banking  system  of  that  day,  is  hardly 
extravagant.  "  Had  a  committee  of  clever  men  been  selected 
to  devise  means  by  which  the  public  might  be  tempted  to 
engage  in  all  manner  of  absurd  projects,  and  be  most  easily 
duped  and  swindled,  we  do  not  know  that  they  could  have 
hit  upon  any  thing  half  so  likely  to  effect  their  object  as  the 
existing  American  banking  system.  It  has  no  redeeming 
quality  about  it,  but  is,  from  beginning  to  end,  a  compound 
of  quackery  and  imposture." 

532.  The  outbreak  of  war  with  England  caused  the  sus- 
pension of  specie  payments  by  nearly  all  banks  except  those 
of  New  England  ;  but  this  was  followed  by  an  enormous  in- 
crease of  issues,  so  that  the  outstanding  notes,  which  had  been 
estimated  at  twenty  millions  in  1811,  rose,  according  to  Sec- 
retary Crawford,  to  somewhere  between  sixty-two  and  seventy 
millions  in  1813,  and  to  somewhere  between  ninety-nine  and  a 
hundred  and  ten  millions  in  1815.  The  fact  that  it  was  im- 
possible for  the  secretary  of  the  treasury  to  tell,  within  eleven 
millions,  the  amount  of  the  notes  outstanding,  is  fairly  char- 
acteristic of  the  monetary  system  at  this  time.  The  circulat- 
ing paper  was  of  every  degree  of  value  down  to  utter  worth- 
lessness.  Many  banks  were  ably  managed  by  honest  men, 
with  reasonable  regard  to  the  public  interest.  Many  were 
organized  and  conducted  by  sharpers  and  swindlers,  as  a 
means  of  wholesale  robbery.* 

At  the  close  of  the  war,  in  1815,  the  depreciation  of  bank 
paper  reached,  in  some  cases,  fifteen,  twenty  and  even  twenty- 
five  per  cent.  The  excess  of  circulating  paper  had  also  been 
promoted  by  the  extensive  issue  of  United  States  treasury 

*  Prof.  Sumner,  in  his  History  of  American  Currency,  states  that  the 
Farmers' Exchange  bank,  of  Gloucester,  Mass.,  was  organized  with  a 
nominal  capital  of  one  million  dollars.  Only  $19,141.46  was  ever  paid 
in  ;  and  of  this  the  directors  subsequently  withdrew  their  own  subscrip- 
tions, leaving  $3,081.11.  One  man  bought  out  eleven  directors  for  $1,300 
each  and  then  loaned  himself  $760,265.  "When  the  bank  failed  it  had 
•  $86.46  in  specie.  The  bank  notes  outstanding  were  estimated  at  $580,000 


EARLY  AMERICAN  MONEY.  441 

notes.  These  were  not  of  forced  circulation  ;  they  failed  to 
be  paid  at  maturity,  and  added  greatly  to  commercial  distrust 
and  distress.  Throughout  1816  the  banks  continued  to  issue 
their  discredited  notes,  while  floods  of  unchartered  scrip  were 
poured  out,  in  bills  of  all  denominations  from  six  cents 
upward. 

533.  The  evils  of  the  financial  situation  led  to  the  estab- 
lishment, in  1816,  of  the  second  Bank  of  the  United  States, 
with  a  capital  of  thirty -five  millions,  of  which  the  United  States 
government  owned  one-fifth,  and  with  a  charter  having 
twenty  years  to  run.  Before  1836,  however,  the  bank  had 
been  broken  down  by  the  relentless  attacks  of  President  Jack- 
son, and  it  was  finally  driven  to  take  refuge  under  a  Pennsyl- 
vania charter.  Our  space  will  not  serve  to  discuss  how  far  the 
failure  of  the  second  United  States  Bank  to  perform  its  antici- 
pated office  of  regulating  the  paper  circulation  and  of  pre- 
venting excessive  and  improper  issues  by  the  state  banks,  was 
due  to  its  original  constitution  ;  how  far  to  false  management; 
how  far  to  circumstances  ;  how  far  to  persecution  by  the 
administration.  Suffice  it  to  say  that  the  paper  money  of  the 
country,  during  this  period,  was  a  weltering  chaos.  The  wildly 
extravagant  issues  of  really  inconvertible  paper  money,  sup- 
plied the  motive  and  the  means  for  every  species  of  extrava- 
gant, wanton  and  irresponsible  speculation.  Words  could 
scarcely  exaggerate  the  extent  to  which  the  distortion  of  pro. 
duction  and  the  misapplication  of  capital  were  carried.*  The 
whole  head  was  sick  and  the  whole  heart  faint. 


*  ' '  That  the  evils  of  this  period  were  due  chiefly  to  vices  of  paper  money 
banking  seems  too  clear  to  be  questioned.  The  opening  up  of  the  west- 
ern country  would  inevitably  have  led  to  much  wild  adventure,  com- 
mercially and  industrially  ;  but  it  was  the  '  elasticity '  of  the  circulation, 
the  facility  of  local  issue,  without  the  reality,  or  scarcely  the  pretense,  of 
redemption,  which  made  the  banks,  even  the  best  of  them,  reckless  as  to 
the  character  of  the  enterprises  to  which  they  gave  assistance  ;  while  the 
money  thus  put  into  circulation,  without  'reflux,'  enhanced  prices,  and 
still  further  stimulated  both  speculative  investments  and  speculative 
trading.  When  the  courage  of  the  better  class  of  banks  gave  way,  hun- 
dreds of  '  wild  cat '  or  '  coon-box  banks,'  so  called,  without  capital, 


442  POLITICAL   ECONOMY. 

The  retribution  came  in  the  panic  of  1837,  in  the  second 
and  heavier  shock  of  1839,  and  in  the  long  and  dreary  pros- 
tration of  industry  which  followed. 

534.  The  experiences  of  this  period  led,  in  several  states, 
to  legislation  designed  to  place  the  issue  of  bank  notes  on  a 
sounder  basis.  In  1838  the  free  banking  system  of  New 
York  was  established,  under  which  all  circulating  notes  were 
to  be  secured  by  deposit,  with  the  state  comptroller,  of  United 
States  or  New  York  stocks  or  bonds,  and  of  mortgages  on 
improved  or  productive  real  estate.  A  little  later  a  law  was 
passed  requiring  each  bank  to  redeem  its  notes  at  some  agency 
in  New  York  city,  Albany  or  Troy.  Subsequent  acts  increased 
the  proportion  of  securities  to  notes  issued,  and  furnished  fur- 
ther guaranties  to  holders. 

This  is  the  scheme  of  secured  circulation,  known  as  the  New 
York  system,  which  came  to  be  imitated,  more  or  less  fully  ; 
and  on  which,  to  a  considerable  extent,  the  banking  laws  of 
the  United  States  are  framed. 

The  plan  of  basing  a  circulation  upon  securities  is  not  to  be 
altogether  approved.  It  does  not  give  convertibility,  in  the 
sense  of  preventing  excessive  issues,  even  in  the  view  of  the 
advocates  of  the  "  banking  principle."  *  It  does  not  so  much 
as  secure  the  perfect  acceptability  of  the  notes,  as  a  medium 
of  exchange,  since  the  receiver  desires  to  be  assured  that  the 
notes  will,  at  any  moment,  be  worth  what  he  has  taken  them 
for,  whereas  the  New  York  system  only  gives  him  a  pledge 
that,  should  the  bank  fail  to  redeem  its  notes,  he  will,  at  some 
future  date,  after  the  bank  shall  have  been  wound  up  and  the 
securities  disposed  of  by  the  comptroller,  receive  the  face 
value  of  all  the  notes  which  he  may  then  hold. 

without  a  constituency,  with  no  past  and  no  expectations  of  a  future, 
whose  managers  risked  nothing  and  had  nothing  to  lose,  came  forward 
with  loans  of  notes  to  speculators  who  planned  to  build  cities  in  the 
wilderness,  or  contractors  who  proposed  to  construct  roads  and  bridges 
without  materials,  tools,  or  money  to  pay  wages.  Again,  as  in  early  New 
England, abank  meant  abatch  of  paper  money." — Walker:  Money,  Trade 
and  Industry. 
*  See  paragraphs  224-6. 


THE  NEW  YORK  SYSTEM.  443 

535.  But    while    this    system   can  not    be   accepted    as 
based  upon  perfectly  sound  principles  of  money,  or  even  of 
banking  policy,  it  proved  at  the  time  so  great  a  check  on 
reckless  paper  money  banking,  and  it  has  had  so  great  an 
effect  in  educating  the  public  mind  to  more  correct  views  of 
the  banking  function  and  of  the  responsibilities  attaching  to 
note  issues,  that  it  deserves  to  be  treated  with  much  consid- 
eration by  the  historian  of  American  money.     The  painful 
experiences  of  1837-40,  and  the  active  discussion  of  the  prin- 
ciples of  money  and  banking  which  they  called  forth  ;   the 
growth  of  a  public  sentiment  condemning  an  excess  of  paper 
issues,  and  the  formulation  of  precepts,  more  or  less  carefully 
observed  by  bank  managers  ;  a  vast  improvement  in  the  com- 
mercial morality  of  the  country,  due  partly  to  education,  and 
even  more  to  the  development  of  manufactures  which,  to  a 
vastly  greater  degree  than  agriculture,  rest  on  good  faith  and 
commercial  honesty  ;  the  shortening  of  the  terms  of  credit  ;* 
these  causes,  together  with  the  legislation  which  has  been 
described  and  the  development  of  the  Suffolk  bank  system  f 
in  New  England,  served  to  place  the  paper  money  issues  of 
the  United  States  on  an  improved  basis  between  1840  and 
1860.     The  rapid  improvement  of  trade  and  industry  after 
the  panic  of   1857,  already  alluded  to   (par.   243),  affords  a 
striking  proof  of  the  comparative  soundness  of  credit,  trade 
and  industry  in  the  later  period. 

536.  Early  in  the  war  of  secession,  the  treasury  being  in 
great  distress,  Secretary  Chase  initiated  the  movement  which 
resulted  in  the  establishment  of  the  present  banking  system 
of  the  United  States.      This  system  was  to  be  essentially 
modeled    on  that  established  in  New  York  by  the  law  of 
1838,  all  note  issues  being  secured  by  an  abundant  deposit,  at 


*  Prior  to  1837  commercial  credits  were  often  extended  to  twelve  and 
even  eighteen  months. 

f  This  was  a  system,  gradually  developed,  by  which  substantially  all 
the  banks  of  New  England  were  brought  to  maintain  a  deposit  with  the 
Suffolk  Bank  of  Boston,  in  consideration  of  which  that  bank  bound 
itself  to  redeem  their  notes  on  presentation. 


444  POLITICAL  ECONOMY. 

the  Treasury  Department  in  Washington,  of  United  States 
stocks.  Indeed,  it  was  this  feature  which  furnished  the  real 
motive  to  the  scheme.  The  Treasury  was  to  sell  to  the  banks 
some  hundreds  of  millions  of  bonds,  as  the  basis  for  their  note 
circulation,  while  all  notes  of  state  banks  not  coming  under 
the  new  system  were  to  be  "  taxed  out  of  circulation." 

As  a  measure  of  fiscal  resource,  the  national  bank  law  was 
essentially  a  failure.  Owing  to  the  delay  in  securing  the 
desired  legislation  *  and  in  transmuting  the  existing  state 
banks  into  national  banks,  it  was  not  until  the  war  was  nearly 
over  and  until  the  credit  of  the  United  States  had  become  so 
well  established  as  to  give  the  Treasury  the  ability  to  borrow 
freely,  at  home  or  abroad,  that  the  new  national  banks  began 
to  call  for  bonds  in  large  amounts,  as  a  basis  of  circulation. 

537.  But  while  that  banking  system  failed  to  answer 
the  expectations  of  Secretary  Chase  as  a  fiscal  resource,  it 
resulted  in  placing  the  paper  money  banking  of  the  country 
on  a  more  secure  and  convenient  basis  than  it  had  ever 
before  occupied.  In  all  previous  periods  of  our  national 
history  the  bank  money  of  some  sections  had  been  liable  to 
a  discount — often  a  considerable  discount — if  offered  far 
away  from  the  place  of  issue  ;  while,  in  addition  to  the 
actual  losses  sustained  by  holders,  the  annoyance  resulting 
from  the  frequent  refusal  to  receive  banknotes  by  those  who 
did  not  know  about  the  individual  bank  whose  name  and 
devices  they  bore,  was  almost  intolerable.  Under  the  existing 
system,  a  national  banknote  from  Texas  or  Minnesota,  if 
not  suspected  to  be  counterfeit,  passes  as  readily  in  Massa- 
chussetts  or  Pennsylvania  as  the  notes  of  local  banks.  By 
the  new  law,  the  United  States  Comptroller  of  the  Currency^ 
whose  office  was  then  created,  was  authorized  to  permit  the 
establishment,  for  a  term  not  exceeding  twenty  years,  of 
banking  associations  consisting  of  not  less  than  five  persons, 
with  a  minimum  capital,  except  in  small  places,  of  one 
hundred  thousand  dollars.  Such  associations  were  required 

*  The  act  establishing  the  national  banking  system  bears  date  Feb- 
ruary, 1863. 


NATIONAL  BANK  ACT.  445 

to  deposit,  with  the  Treasury  Department,  "United  States 
bonds  to  the  extent  of  at  least  one-third  their  capital,  for 
which  there  should  be  issued  to  them  circulating  notes  in 
amount  equal  to  ninety  per  cent,  of  the  market  value  of 
their  bonds,  but  not  beyond  ninety  per  cent,  of  the  par  value 
of  such  bonds.  The  issue  of  currency,  under  this  act,  was  to 
be  limited  to  three  hundred  millions,  that  amount  to  be  appor- 
tioned among  the  States  according  to  population  and  banking 
capital. 

In  1882,  a  new  law  was  passed,  providing  for  extending  the 
charters  of  national  banks. 

538.  The  operation  of  the  law  regarding  the  deposit  of 
United  States  bonds  as  a  basis  of  circulation,  may  be  illus- 
trated as  follows  :  A  national  bank  expends  $160,000  in  the 
purchase  of  bonds,  then  selling  at  80  per  cent,  of  their  par  or 
face  value.  The  bank  would  then  hold  bonds  to  the  amount 
(at  par)  of  $200,000.  On  the  deposit  of  these,  the  treasury 
department  would  issue  circulating  notes  thereon  to  the 
extent  of  ninety  per  cent.,  not  of  their  par,  but  of  their  market 
value,  viz.  :  one  hundred  and  forty-four  thousand  dollars. 
These  notes,  bearing  its  own  corporate  title  and  its  character- 
istic devices,  the  bank  would  issue  in  the  discount  of  commer- 
cial paper.  This  might,  in  fact,  constitute  the  greater  part  of 
what  the  bank  had,  at  the  outset,  to  loan — its  own  promises 
to  pay.  If  we  suppose  the  bank  to  keep  out  the  whole  body 
of  notes  received  from  the  treasury  on  loans  bearing  interest 
at  an  average  rate  of  five  per  cent.,  the  annual  income  from 
this  source  will  be  $7,200.  In  addition  thereto,  the  bank  will 
receive  from  the  treasury  department,  semi-annually  or 
quarterly,  drafts  for  the  amount  of  the  interest  falling  due 
on  the  bonds  held  for  the  redemption  of  the  notes.  If  the 
rate  of  interest  on  the  bonds  were  four  per  cent,  (on  the  par 
value,  of  course),  the  amount  so  received  would  be  $8,000  a 
year,  making  the  aggregate  income  on  both  accounts,  $15,200. 
This  'would  be  a  return  of  9^  per  cent,  on  the  amount — 
$160,000 — expended  in  the  purchase  of  the  bonds.  In  ad- 
dition thereto,  would  be  the  expectation  of  profit  arising  from 
the  fact  that,  at  the  maturity  of  the  bonds,  be  that  five, 


446  POLITICAL  ECONOMY. 

fifteen,  thirty  or  fifty  years  hence,  the  government  is  bound  to 
pay  the  face  value  of  the  bonds,  whereas  the  bank  purchased 
them  at  eighty  per  cent.  Now,  the  "  present  value  "  of  twenty 
(100-80)  dollars,  at  five  per  cent,  interest,  is  considei'able  if 
payable  in  five  years,  is  worth  considering  if  payable  in 
fifteen  years,  is  inconsiderable  if  payable  in  thirty  or  fifty 
years  :  so  that  this  element  may  amount  to  much,  little  or 
nothing,  according  to  the  term  which  the  bonds  have  to  run. 

If,  in  a  second  case,  the  bank  invested  the  same  sum — 
$160,000,  in  United  States  bonds,  at  par,  it  would  receive 
bonds  to  the  amount  of  $160,000,  on  which  the  treasury  de- 
partment would  issue  $144,000  worth  of  circulating  notes,  as 
before,  being  ninety  per  cent.,  this  time,  alike  of  the  market 
and  of  the  par  value  of  the  bonds  held  for  redemption. 
Making  the  same  assumptions  as  before,  regarding  the  aver- 
age rate  of  interest  realized  by  the  bank  on  its  loans,  and  the 
rate  of  interest  on  the  bonds  themselves,  we  should  have  the 
income  from  the  former  source,  $7,200,  and  from  the  latter 
source,  $6,400  ;  an  aggregate  of  $13,600,  being  eight  and  a 
half  per  cent,  on  the  amount  invested,  with  no  longer  any 
expectation  of  profit  from  the  difference  between  the  amount 
of  purchase  money  and  the  principal  of  the  bonds  to  be  paid 
at  maturity. 

If,  in  a  third  case,  we  suppose  that  the  bank  expends  the 
same  amount,  as  before,  in  the  purchase  of  United  States 
bonds,  bearing  a  premium  of  twenty-five  per  cent,  (and  the 
bonds  of  the  United  States  have  almost  always  been  at  a 
premium,  greater  or  less,  at  times  rising,  on  some  classes  of 
bonds,  to  the  rate  assumed),  the  face  value  of  the  bonds  so 
purchased  would  be  but  $128,000,  on  which  the  treasury 
department  would  issue  notes  to  the  amount  of  $115,200, 
being  ninety  per  cent,  of  the  face  value  of  the  bonds,  though 
but  seventy-two  per  cent.,  this  time,  of  their  market  value. 
On  the  same  assumption  as  to  interest,  etc.,  as  before,  the 
bank  would  receive  from  the  loan  of  its  notes  $5,760  ;  from 
the  government,  as  interest  on  the  bonds,  $5,120  ;  an  aggregate 
of  $10,880,  or  only  six  and  eight-tenths  per  cent,  on  the 
$160,000  invested.  In  this  case,  moreover,  there  must  be 


BANKNOTE  ISSUES.  447 

taken  into  account  an  ultimate  loss  of  one-fifth  of  the  pur- 
chase money.  Although  the  bank  has  paid  $125  for  each 
$100  bond,  the  government  will,  at  maturity,  pay  only  the  face 
value,  namely,  $100.  The  "present  value"  of  the  amount 
thus  to  be,  sooner  or  later,  lost,  is  to  be  determined  by  the 
same  principles  which  would  be  applied  to  obtaining  the 
"  present  value  "  of  the  amount  to  be  ultimately  gained,  had 
the  bank  purchased  bonds  at  a  discount.  As  we  said  before, 
their  "  present  value  "  would  be  much,  little  or  practically 
nothing,  according  to  the  term  which  the  bonds  had  to  run. 

539.  The  profit  to  the  banks,  under  the  present  system, 
largely  depends,  it  will  be  seen,  upon  two  elements  :  the  rate 
of  interest  on  the  bonds  themselves,  and  the  premium  or  dis- 
count at  which  the  bonds  can  be,  at  any  given  time,  purchased. 
During  the  war,  abank  could  purchase,  for  $100,000  in  green- 
backs, an  equal  amount  of  six  per  cent,  bonds,  payable,  prin- 
cipal and  interest,  in  gold.  Depositing  these  in  the  treasury, 
it  would  receive  $90,000  in  circulating  notes,  which  it  would 
loan  at  such  rates  of  interest  as  the  commercial  demands  of 
the  time  allowed,  and  would  receive  each  year,  as  interest, 
$6,000  in  gold,  which  it  could  sell  at  twenty-five,  fifty  or  even 
a  hundred  per  cent,  advance  in  greenbacks,  according  to  the 
enormously  high,  though  fluctuating,  war  premiums  on  gold 
then  prevailing.  The  gradual  decline  and  finally  the  disap- 
pearance of  the  premium  on  gold  *;  the  reduction  in  the  rate 
of  interest  on  government  bonds  from  six  per  cent,  to  five, 
to  four  and  a  half,  and  ultimately  to  three  and  a  half 
and  even  three  per  cent.,  through  successive  refunding  opera- 
tions ;  and  lastly  the  appearance  of  high  premiums  upon  bonds 
bearing  the  reduced  rates  of  interest,  these  three  causes  have 
concurred  to  diminish,  point  by  point,  the  profit,  to  the  bank, 
in  buying  United  States  bonds  and  depositing  them  with  the 
treasury  department,  as  the  basis  of  note  circulation,  until, 
at  the  present  time  (1887),  many  banks  are  surrendering 
their  circulation,  finding  it  more  to  their  interest  to  use  the 
capital  at  their  command  in  other  ways.  The  number  of 

*  Specie  payments  were  resumed  on  January  1,  1879. 


448  POLITICAL  ECONOMY. 

national  banks  at  the  present  time  in  existence,  is  about 
two  thousand  nine  hundred.  These  are,  of  course,  distrib- 
uted very  irregularly  over  the  surface  of  the  country. 

540.  The  money  of  the  United  States  now  consists  of  gold 
coin  (twenty,  ten,  five,  two  and  a  half  or  one  dollar  pieces), 
legal  tender  for  debts  in  any  amount ;   (2)  of  silver  dollars, 
legal  tender  in  any  amount ;  (3)  of  subsidiary  silver   coins 
(fifty,  twenty-five,  twenty,  ten  or  five  cent,  pieces),  legal  ten- 
der in  small  amounts  as  change  ;  (4)  of  copper  or  nickel  coins 
(five,  three,  two  or  one  cent  pieces)  ;  (5)  of  "greenbacks,"  of 
various  denominations,  from  one  dollar  to  one  thousand  dol- 
lars ;  (6)  of  "  gold  notes  "  and  (7)  of  "  silver  notes,"  of  various 
denominations,  issued  solely  upon  the  deposit,  at  the  several 
sub-treasuries,*  of  equivalent  amounts  of  gold  or  silver  ;  (8)  of 
national  banknotes,  issued  as    hereinbefore    described.       In 
this  highly  complex  mass,  the  proportion  of  banknotes  is  con- 
tinually diminishing,  owing  to  the  reduction  in  the  profits  of 
banknote   circulation  already  accounted  for.      This  fact  con- 
stitutes one  of  the  gravest  features  of  the  financial  situation, 
and  threatens  the  country  with  the  speedy  loss  of  all  the  advan- 
tages thus  far  enjoyed  under  the  national  banking  system. 

XIII. 

FOREIGN     EXCHANGES. 

541.  Meaning  of  Exchange. — Formerly,  when  debts  were 
paid  by  the  merchants  of  one  country  to  those  of  another, 
it  was  almost  always  necessary  actually  to  change  the  money 
of  the  debtor  country  into  that  of  the  creditor  country.  Thus, 
if  a  merchant  in  Paris  had  occasion  to  pay  a  debt  to  a  mer- 

*  After  the  destruction  of  the  second  United  States  Bank  and  the 
crisis  of  1837-9,  the  United  States  government  adopted  the  policy  of 
keeping  its  funds  in  its  own  treasury  at  Washington,  or  in  the  custody 
of  "assistant  treasurers,"  appointed  in  the  great  commercial  cities.  The 
offices  of  the  assistant  treasurers  are  popularly  called  "sub-treasuries.'' 
The  origin  and  development  of  the  sub-treasury  system  will  afford  an 
admirable  economic  exercise  for  advanced  students. 


FOREIGN  EXCHANGES.  449 

chant  in  Antwerp,  it  was  necessary  first  to  compute  the  quan- 
tity of  "fine  "  (i.  e.  pure)  silver  contained  in  the  amount  of 
Antwerp  money  due  under  the  contract  ;  then  to  find  out  how 
many  French  coins  (their  weight  and  fineness  being  known) 
would  be  required  to  make  up  that  amount  of  pure  silver. 
This  being  ascertained,  the  Paris  merchant  paid  down  the 
French  money  (plus  the  premium,  or  minus  the  discount,  of 
which  we  shall  speak  later)  and  received  the  Paris  banker's 
order  upon  some  Antwerp  banker  to  pay  the  Antwerp  mer- 
chant the  amount  of  Antwerp  money  due  him.  It  was  with  ref- 
erence to  this  changing  of  one  kind  of  money  into  another,  that 
the  term  exchange  was  first  applied  to  this  class  of  transactions. 
It  came  in  time,  however,  to  be  equally  applied  to  transac- 
tions between  cities  under  the  same  government,  having  the 
same  kinds  of  money,  where,  hence,  no  actual  changing  of 
money  pieces  was  required. 

At  the  present  time,  this  changing  of  money  pieces  plays  a 
very  much  less  important  part  in  exchange.  Instead  of 
many  states  having  independent  authority  to  coin  money, 
there  is  now  but  one  coining  authority  in  all  Italy.  The 
money  of  Germany  is  now  uniform  in  weight  and  fineness. 
France,  Italy,  Belgium,  Switzerland,  Greece  and  Austria  have 
•certain  money  coins  which  may  be  said  to  be  in  common,  i.  e., 
they  contain  the  same  amount  of  pure  metal,  though 
under  different  denominations  and  with  different  inscriptions. 
The  vast  extension  of  the  British  empire  has  made  the  "  sov- 
ereign "  current  money  over  a  large  part  of  the  globe. 

542.  What  is  Exchange  ? — In  essence,  where  a  man  buys 
•exchange — he  buys  the  right  to  have  paid  to  him,  or  his  agent, 
or  his  creditor,  a  certain  amount  of  fine  gold  or  silver,  to  be 
delivered  in  so"me  other  place  mentioned  in  the  contract.  If  I 
buy  in  New  York  "  exchange  on  London,"  some  one  who  has 
gold  in  London,  or  who  has  a  right  to  demand  gold  there,  sells 
me  his  claim  to  receive  a  definite  amount  of  that  metal,  in  Lon- 
don, at  a  definite  time,  or  at  my  convenience  if  we  so  agree. 
I  may  then,  either  go  to  London  and  get  the  metal,  as,  for 
instance,  if  I  am  starting  out  on  a  European  tour,  or  I  may 
fiend  an  order,  by  post  or  telegraph,  for  some  one  else  to  get 


45°  POLITICAL   ECONOMY. 

it  there,  as,  for  instance,  if  I  have  bought  cotton  goods  ot 
pictures  in  London,  and  have  agreed  to  pay  for  them  in 
this  way. 

543.  Par  of  Exchange. — Now,  we  may  suppose  that,  in 
order  to  induce  some  person  to  sell  me  "  exchange  on  London,'* 
I  have  to  pay  him,  not  in  goods,  but  in  a  certain  amount  of 
gold  in  New  York,  where  we  both  live.  How  much  gold  shall 
I  pay  him  in  New  York  to  induce  him  to  give  me  the  right 
to  receive  a  certain  amount,  say  1,000  ounces,  of  gold  in  Lon- 
don ?  Shall  I  have  to  pay  him  1,000  ounces,  or  more,  or  less  ? 
That  depends  on  whether  exchange  is  at  par  (equality),  or 
above  par,  or  below  par. 

Exchange  between  two  places  is  at  par,  when,  by  paying  a 
certain  amount  of  money  metal,  or  its  equivalent,  in  one 
place,  you  can  purchase  the  right  to  receive  an  equal 
amount  of  the  same  metal  in  the  other.  I  say,  the  same  metal, 
for  there  can  be  no  par  of  exchange  between  countries  hav- 
ing gold  money  and  countries  having  silver  money,  unless,, 
indeed,  the  bi-metallists  (par.  563)  shall  make  good  the  claim 
that  their  system  will  establish  and  maintain  a  certain  definite 
ratio  between  the  values  of  the  two  metals. 

Exchange  is  above  par  or  below  par,  when  the  right  to 
receive  elsewhere  a  given  amount  of  gold  or  silver,  is  to  be 
purchased  by  paying,  in  the  one  case,  a  larger,  and,  in  the 
other  case,  a  smaller  amount  of  the  same  money  metal,  in  the 
place  where  the  transaction  is  effected. 

Exchange  will  be  at  par  when  the  sums  of  the  payments  to 
be  made  to  and  from  any  two  places,  within  a  given  time, 
exactly  balance  each  other.  If  the  sum  of  the  payments  to 
be  made  within  a  limited  period  by  the  merchants  of  one 
place,  say  New  York,  to  the  merchants  of  another  place,  say 
London,  is  greater  than  the  sum  of  the  payments  to  be  made 
in  New  York  by  the  merchants  of  London,  then  exchange 
on  London  will  be  above  par  in  New  York  ;  that  is,  a  New 
York  merchant  having  to  pay  a  debt,  within  that  period,  in 
London,  will  have  to  pay  down  more  than  1,000  ounces  oi 
gold  in  New  York  to  buy  the  right'to  have  paid  to  him,  or  to 
his  creditor,  1,000  ounces  of  gold  in  London. 


BALANCE   OF   TRADE.  451 

544.  The    upward    limit    of    the    premium  *  on  bills   of 
exchange  is  the  cost  of   remitting  specie.     The  New  York 
merchant,  in  the   case  supposed,  will  not  pay  more,  in  addi- 
tion to  1,000  ounces,  than  the  cost  of  sending  1,000  ounces 
from  New  York  to  London,  interest,  freight,  insurance,  and 
commissions  being  taken  into  account.     If  the  holders  of  bills 
demand  a  premium  above  this,  the  New  York  merchant  will 
send  the  metal,  and  in  that  way  pay  his  debt.     Within  the 
limit  thus  assigned,  the  premium  on  bills  rises  or  falls  with 
the  fluctuations  of  the  market,  according  to  the  law  of  supply 
and  demand. 

While,  thus,  exchange  on  London  is  at  a  premium  in  New 
York,  exchange  on  New  York  will,  conversely,  be  at  a 
corresponding  discount  in  London.  If  a  New  York  merchant, 
owing  1,000  ounces  of  gold  in  London,  has  to  pay  somewhat 
more  than  that  amount,  a  London  merchant,  owing  1,000 
ounces  in  New  York,  will  be  able  to  purchase  the  right  to 
receive  that  amount  there  for  something  less  than  1,000 
ounces.  The  downward  limit  f  of  the  discount  on  bills  of 
exchange  is,  again,  fixed  by  the  cost  of  remitting  specie. 

545.  The  Balance  of  Trade. — We  have  said  that  exchange 
between  two  places  will  be  at  par  when  the  sum  of  the  payments 
falling  due  on  the  one  side  is  equal  to  the  sum  of  the  payments 
falling  due  at  the  same  time  on  the  other  side.    It  may  happen 
— it  frequently  does  happen — in  the  trade  between  countries  A 
and  B,  that  country  A  may  at  one  season  of  the  year  have  the 
larger  payments  to  make,  while  in  another  season  the  relations 
will  be  reversed.     The  exports  from  the  United  States,  for 
example,  tend  to  take  place  predominantly  in  the  few  months 
following  the  harvest.    At  that  time  the  United  States  becomes 
chiefly  a  creditor  country.     The  merchants  of  other  countries 
have  large  amounts  to  pay  in  New  York,  on  account  of  produce 
received ;  and  consequently  exchange  on  New  York  is  at  a 

*  Except,  of  course,  in  great  and  sudden  emergencies,  like  the  outbreak 
of  a  war,  or  the  occurrence  of  a  commercial  crisis. 

f  Except  in  great  and  sudden  emergencies,  as  indicated  in  a  previous, 
note. 


45 2  POLITICAL  ECONOMY. 

premium  in  London,  Paris,  Amsterdam,  etc.  Conversely, 
exchange  on  London,  Paris,  Amsterdam,  etc.,  is  at  a  cor- 
responding discount  in  New  York.  During  the  other  half  of 
the  year,  the  United  States  generally  import  more  largely 
than  they  export,  and  the  course  of  exchange  is  reversed. 
Bills  on  London  are  at  a  premium  in  New  York,  on  account 
of  large  payments  to  be  made  abroad  ;  bills  on  New  York  are 
at  a  discount  in  London.  The  discrepancy  thus  arising  from 
the  nature  of  the  industry  of  any  given  country,  between  the 
times  at  which  its  payments  are  chiefly  to  be  made  and  those 
at  which  it  is  to  receive  the  bulk  of  the  amounts  due  to  it,  on 
account  of  its  own  exports,  is,  in  a  degree,  often  very  largely, 
removed  by  bills  drawn,  as  the  phrase  is,  in  blank.  These  are 
bills  which  do  not  discharge  a  debt,  but  create  a  debt.  Exporters 
often  draw  such  bills,  generally  with  permission  obtained  in 
advance,  upon  those  to  whom  they  habitually  sell  or  consign 
their  shipments,  in  anticipation  of  the  goods  being  actually 
dispatched.  Such  a  course  is  liable  to  very  grave  abuses, 
being  often  resorted  to,  not  merely  in  promotion  of  reckless 
and  outrageous  speculation,  but  even  for  the  purposes  of 
downright  swindling  ;  and  the  courts  and  newspapers  are 
much  given  to  reflecting  severely  upon  this  practice,  in  general, 
whenever  some  case  of  its  perversion  is  brought  to  light.  Yet 
this  system  of  credits,  when  kept  within  bounds,  confined  to 
proper  parties,  and,  as  Mr.  Goschen  says,  "  jealously  and  even 
suspiciously  watched,"  serves  a  very  important  purpose  in 
equalizing  the  income  and  outgo  of  nations  and  in  diminishing 
the  extent  to  which  shipments  of  specie  require  to  be  made. 
The  point  we  have  now  reached  introduces  the  vexed 
question  of  the  Balance  of  Trade.  Few  subjects  are 
more  complicated  or  more  generally  misunderstood.  The 
question,  whether  a  year's  commercial  transactions  have, 
in  the  net  result,  brought  a  nation  more  in  debt  to  othev 
nations  than  they,  in  the  aggregate,  have  come  to  owe  to 
it,  is  commonly  decided,  offhand,  by  simple  reference  to 
the  custom-house  statistics  of  the  values  of  exports 
from  and  imports  into  that  country.  Such  a  test  is  alto- 
gether fallacious.  The  statistics  of  exports  and  imports, 


COMMERCIAL   STATISTICS.  453 

if  fairly  well  collected  and  compiled,  are  of  great  value  ;  but 
it  is  necessary,  first,  to  make  correction  for  their  internal 
errors,  and,  secondly,  to  take  into  account  several  elements 
which  the  custom-house  statistics  do  not  undertake  to  include. 

546.  Errors  in  Commercial  Statistics.— The  official  state- 
ments of  imports  and  exports  are  more  or  less  disturbed  by 
errors  from  two  exactly  opposite  sources.  If  the  goods 
imported  or  exported  are  subject  to  duties  at  the  custom 
house,  the  importer  or  exporter  comes  under  a  very  strong 
temptation  to  misrepresent  their  value  or  amount.  If,  on  the 
other  hand,  the  goods  are  free  of  duty,  both  the  custom-house 
officials  and  the  merchants  are  liable  to  become  very  careless 
in  making  the  required  statements  as  to  the  quantity  of  such 
goods,  and  still  more  careless  regarding  statements  of  value. 

How  far  these  two  causes  together  may  result  in  vitiating 
the  official  statistics  of  imports  and  exports,  will,  of  course, 
depend  greatly  upon  the  organization  of  the  civil  service, 
upon  the  general  morality  of  the  trading  and  official  classes, 
and  upon  the  integrity  and  severity  with  which  the  laws  are 
enforced  ;  but  it  is  not  possible  under  any  organization  or 
administration  wholly  to  eliminate  errors  of  importance,  from 
one  or  both  of  these  sources.  Imported  goods  subject  to  duty 
will  be  largely  undervalued,  in  spite  of  all  the  vigilance  of 
honest  officials.  Exports  are  probably  even  more  grossly 
undervalued,  because  being,  by  the  fiscal  system  of  most 
nations,  free  of  duty,  even  the  most  honest  officials  are  likely 
to  attach  little  importance  to  the  statements  of  value,  since 
they  are  aware  that  no  revenue  interest  of  the  government  is 
concerned  therein. 

In  addition  to  these  general  causes,  affecting,  though  in  very 
different  degrees,  the  commercial  statistics  of  all  nations, 
there  are  apt  to  be  special  liabilities  to  error  affecting  the  com- 
mercial statistics  of  any  given  country.  Thus,  with  regard  to 
the  United  States,  it  is  found  that  while  a  reasonable  degree  of 
«are  and  pains  is  taken  to  ascertain  the  values  of  goods 
exported  by  ocean-going  vessels,  the  statement  of  our  exports 
by  rail,  by  ferry-boat,  or  by  small  river  and  lake  vessels  to 
Canada  and  Mexico,  are  exceedingly  defective,  so  much  so  as 


454  POLITICAL  ECOA'OMY. 

to  be  almost  wholly  worthless.  It  is  notorious  that  many 
millions  are  omitted  yearly  from  our  statistics  on  these 
accounts. 

547.  Elements  not  included  in  Custom  House  Statistics.— 
Passing  now  to  elements,  other  than  internal  errors  in  custom- 
house statistics,  which  require  to  be  taken  into  account,  in 
order  to  reach  the  true  balance  of  trade,  I  will  briefly  mention 
the  most  important.  The  reader  who  desires  to  pursue  the 
subject,  will  find  it  treated  in  a  most  interesting  and  instruc- 
tive manner  in  Mr.  Goschen's  work  on  Foreign  Exchanges. 

The  principal  elements  to  be  considered  are,  first,  the 
exportation  or  importation  of  government  securities,  shares  and 
bonds  of  corporations,  titles  to  property,  etc.  This  is  an  element, 
which,  at  times,  may  rise  to  an  enormous  importance  ;  at  other 
times,  it  may  sink  into  insignificance.  It  may  be  considerable  as 
between  certain  countries,  while  as  between  either  of  those 
countries  and  any  other,  it  may  amount  to  little  or  nothing. 

During  the  war  of  secession  the  United  States  sold  its  bonds 
in  Europe  *  to  the  amount  of  hundreds  of  millions  of  dollars, 
bringing  back  arms,  ammunition,  clothing  and  other  supplies. 
The  latter  went  into  the  statistics  of  imports  ;  while  the  statis- 
tics of  exports  took  no  account  of  the  former.  As  these  bonds 
had  many  years  to  run,  the  value  of  the  goods  so  imported  did 
not  enter  into  the  amount  to  be  paid  for  abroad  in  those 
years.  In  the  same  way,  many  of  our  great  railroads  have  been 
built  mainly  or  wholly  with  foreign  capital,  shares  in  the 
stock  of  those  railroads,  or  more  commonly,  first-mortgage 
bonds,  being  sent  abroad  without  passing  through  our  cus- 
tom-houses, while  rails  and  other  supplies  were  brought  back 
through  the  custom-house,  thus  swelling  our  tables  of  imports. 
In  like  manner,  large  quantities  of  foreign  goods,  of  all  sorts, 
have  been  sent  to  us  year  after  year,  in  consideration  of  which 
foreigners  have  received  from  us,  not  our  corn,  cotton  or 
petroleum,  but  the  titles  to  mines,  to  agricultural  and  grazing 
lands,  mortgages  on  western  farms,  the  bonds  of  cities  and 
counties,  etc. 

*  "  To  contract  a  foreign  loan  is  [with  regard  to  the  Balance  of  Trade) 
equivalent  to  an  increase  of  exportation." — Goschen. 


BALANCE   OF    TRADE.  455 

The  aggregate  amount  of  such  securities  and  titles  exported 
from  the  United  States  has  been  enormous,  though  the  move- 
ment has  been  very  irregular  from  year  to  year.  Nor  has  the 
current  been  all  one  way.  When  our  government  began  to 
refund  its  debt  at  a  lower  rate  of  interest — at  three  and  a 
half  or  three  per  cent.,  instead  of  six  or  seven  per  cent.,  nearly 
all  our  national  bonds  which  had  been  held  in  Europe  were 
returned.  Now  and  then  some  large  mass  of  railroad  or  city 
bonds  are  sent  back,  at  maturity,  for  redemption, — the  proceeds 
to  be  reinvested  in  other  securities,  of  which  the  custom- 
house would  not  take  notice,  or  to  be  "  drawn  against "  in 
payment  for  corn  or  cotton,  of  which  the  custom-house  would 
take  notice. 

"While  the  element  which  we  have  been  considering  is  of 
enormous  importance  to  the  United  States,  as  affecting  the 
balance  of  trade  within  any  given  year,  England  is  the  nation 
whose  commercial  statistics  need  most  to  be  supplemented 
from  this  source.  Hers  has  been  the  greater  part  of  the  capi- 
tal which  has  come  to  us  from  Europe,  for  loan  or  invest- 
ment ;  and  for  the  last  forty  years  she  has  been  doing  a  sim- 
ilar work  in  every  part  of  the  world,  building  railroads  in  Can- 
ada, Australia,  Mexico,  South  America,  India  and  Persia, 
even  in  France,  Germany  and  Russia,  providing  capital,  out 
of  her  superabundance,  for  every  species  of  enterprise  in  any 
land  that  promised  a  profit,  and  even  furnishing  the  means 
with  which  half  the  wars  of  the  present  generation  have  been 
waged. 

548.  Interest  on  Government  Securities.— But  while,  as 
we  have  said,  it  is  true  that  in  these  modern  times,  enormous 
amounts  of  imports  or  of  exports  of  merchandise  are,  in  the 
case  of  any  given  country,  set  off,  not  against  equal  amounts 
of  exports  or  of  imports  of  merchandise,  but  against  shares, 
stocks,  bonds,  or  mortgages,  sent  abroad  or  brought  home,  as 
the  case  may  be,  it  is  also  true,  that  dividends  or  interest 
on  such  shares,  bonds,  etc.,  become  due  annually,  semi-annu- 
ally,  or  quarterly,  immediately  thereafter,  and  require,  there- 
fore, to  be  added  to  the  amounts  which  the  debtor  nations 
have  to  pay  ;  which  the  creditor  nations  have  to  receive, 


456  POLITICAL  ECONOMY. 

thus  affecting  at  once  the  course  of  exchange.  Some  nations 
have  to  pay  millions  annually,  others,  tens  of  millions,  on  this 
account.  Those  nations,  which,  in  some  past  period  have 
spent  vast  sums  in  great  wars  or  on  costly  public  improvements, 
without  paying  for  them  at  the  time  through  taxation,  now 
find  a  certain  portion  of  their  exports  of  merchandise  going 
every  year  to  pay  the  interest  on  their  debts.  Against  this 
is  set  nothing  of  which  the  custom-house  takes  notice.  No 
goods  come  back  to  pay  for  these  exports  :  only  some  pack- 
ages of  canceled  coupons. 

549.  Expenses  of  Fleets   on  Foreign  Stations,   etc. — 
Another  item  which  should  be  added  to  the  imports  of  a 
country,  in  making  up  its  current  accounts  with  other  nations, 
consists  of  the  expenses  of  its  fleets  on  foreign  stations,  or  of 
its  armies,  if  in  occupation  of  other  countries.     In  the  case 
of  great  naval  nations,  this  item  is  not  of  small  importance. 
For  a  little  while  after  vessels  of  war  leave  the  home  poi'ts, 
their  petty  expenses  may  be  met  with  gold  taken  from  home, 
which  may  or  may  not  have  passed  the  custom-house  ;  but 
subsequently,  the  expenses  of  the  fleet  will  be  met  by  bills  of 
exchange,  which  will  be  just  so  much  added  to  the  volume  of 
bills  which  represent  the  commercial  imports  of  the  home 
country. 

The  expenses  of  foreign  embassies  and  legations  and  of 
the  consular  service  stand  in  the  same  relation  to  the  imports 
of  the  country  represented. 

550.  Expenses  of  Foreign  Travel. — In  like  manner  the 
sums  expended  by  tourists   and  travelers  abroad  constitute  a 
very  considerable  item  in  those  accounts  which  go  to  deter- 
mine the  balance  of  trade.     The  good  things  eaten  or  drunk 
by  our  citizens  abroad  are  as  much  a  part  of  our  imports,  for 
the  purposes  of  such  a  computation,    as  if    they  had   been 
brought  to  the  United  States  in  vessels  and  had  been  consumed 
here.     Every  year,  many  millions  are  expended  by  our  citi- 
zens abroad,  out  of  the  proceeds  of  bills  of  exchange.     Mr. 
Goschen  states  that  several    millions  sterling  are   annually 
expended  by  the  rich  Russian  nobility  in  traveling  or  in  foreign 
residence. 


BALANCE   OF   TRADE.  457 

551.  Tributes,  War  Indemnities,  Etc.— From  whatever 
motive  an  independent  country,  a  colony  or  a  province  may 
have  occasion  to  make  payments  to  another  power,  or  to  the 
sovereign  or  mother  country,  whether  that  motive  be  found  in 
protection  extended,  in  privileges  conceded,  in  fear  of  hostil- 
ity, or  as  a  fine  for  past  conduct,  such  payments  affect  ex- 
changes in  all  respects  as  if  they  were  on  account  of  foreign 
goods  imported.  Yet,  here,  again,  we  have  an  element  of  which 
the  statistics  of  commerce  take  no  account.     Whenever  these 
payments  are  regular,  they  affect  the  course  of  exchange  no 
more,  if  not  less,  than  ordinary  commercial  payments.     Thus, 
trade  and  exchange  adjust  themselves  to  the  tribute  paid  by 
Java  to  Holland  with  perhaps  even  more  of  exactness  and  cer- 
tainty than  as  if  the  payments  were  on  account  of  goods  im- 
ported into  Java  for  the  improvement  of  its  agriculture,  or  for 
starting  manufactures.     On  the  other  hand,  an  extraordinary 
payment  of  this  character,  is  likely  to  produce  great  and  far 
reaching,  and  it  may  be  long  enduring  effects  upon  the  mar- 
ket of  exchange.     The  gigantic  war  indemnity  paid  by  France 
to  Germany,  in  1871,*  notwithstanding  the  transcendent  finan- 
cial skill  with  which  the  negotiations  were  conducted,  set  in 
motion  forces  which  were  felt  by  trade  and  industry  to  the 
remotest  parts  of  the  earth. 

552.  Freight,  Insurance,   Profits,  Commissions,  Etc. — 
But  we  have  not  yet   reached   the   largest  of   the   elements 
which  determine  the  balance  of  trade,  of  which  ordinary  com- 
mercial statistics  take  no  account.     Let  us  suppose,  for  illus- 
tration, that  country  A  imports  from  country  B  goods,  whose 
value,  at  the  ports  of  B,  is  one  hundred  and  fifty  millions  of 
dollars,  and  exports  to  B  goods,  whose  value,  at  its  own  ports, 
is  correctly  stated  at  one  hundred  millions.     Now,  here  is  an 
apparent  difference  of  fifty  millions  of  dollars.     If,  however, 
we  can  reach  the  facts  regarding  the  carriage,  insurance,  etc., 
of  these  goods,  amounting  in  the  aggregate  to  two  hundred 


*  A  study  of  the  methods  used  in  the  payment  of  this  indemnity,  and 
of  its  financial  and  industrial  effects,  will  constitute  an  admirable  exer- 
cise for  a  pupil  well-grounded  in  economic  principles. 


•  458  POLITICAL    ECONOMY. 

and  fifty  millions  of  dollars,  we  may  find  the  apparent  balance 
greatly  modified,  in  the  way  either  of  increase  or  reduction. 
Suppose,  for  example,  that  country  A  owns  all  the  shipping 
engaged  in  this  traffic  ;  the  charges  for  freight  on  its  own 
exports  might  easily  reach  ten  or  fifteen  millions  of  dollars, 
which  would  require  to  be  added  to  the  custom-house  valua- 
tion, in  order  to  make  up  the  true  balance  between  the  two 
countries.  On  the  other  hand,  the  ten  or  fifteen  per  cent, 
charged  for  carriage  on  its  imports  would  be  paid  to  its  own 
citizens.  In  the  same  way  country  A  might  do  all  the 
insurance  business  relating  to  both  sides  of  the  traffic  ;  and  its 
merchants  and  factors  might  conduct  all,  or  nearly  all,  the  com- 
mercial operations  involved.  In  such  a  case  the  premiums  for 
insurance,  the  commissions  and  profits  of  trade  would  go  still 
further  to  reduce  the  apparent  balance  between  the  two  coun- 
tries. On  the  other  hand  that  apparent  balance  might  have 
been  greatly  extended  by  the  fact  that  all  the  shipping 
merchants  and  most  of  the  importers,  factors  and  insurers 
engaged  in  the  traffic  belonged  to  country  B. 

The  suppositions  above  made  are  not  in  themselves  unreason- 
able. It  generally  happens  that,  in  the  commerce  between  two 
nations,  one  or  the  other  does  by  far  the  larger  part,  often, 
practically,  the  whole  carrying  business,*  as  well  as  obtains 
an  altogether  disproportionate  share  of  the  premiums  of  insur- 
ance, and  of  the  profits  and  commissions  of  traffic. 

553.  It  is  not  necessary  to  extend  our  enumeration  to  minor 
items  of  the  accounts  between  trading  nations,  in  order  to 
show  the  reader  how  greatly  the  ordinary  statistics  of  imports 
and  exports  must  be  corrected  and  supplemented  before  we 
can  reach  a  decision  as  to  the  amounts  by  which  the  payments 
to  be  made  in  any  given  period  by  one  country  to  any  other 
country  or  to  all  other  countries,  exceed  the  payments  due  to 
itself.  Mr.  Goschen  states  that  Russia  has  more  than  once, 
in  times  of  peace,  as  I  understand  it,  so  far  fallen  behind  in 

*"  An  exclusively  maritime  country  could  discharge  its  obligations  to 
other  countries  which  supply  it  with  necessaries,  simply  by  becoming  their 
carrier,  without  exporting  any  produce  or  manufactures  to  them  In 
return." — Goschen. 


BALANCE   OF   TRADE.  459 

her  dealings  with  other  countries,  as  to  be  obliged  to  contract 
a  foreign  loan,  exporting  public  securities  made  for  the  pur- 
pose, as  a  means  of  restoring  the  balance.  Of  course,  such  a 
temporary  expedient  in  the  end  serves  to  increase  the  com- 
mercial and  financial  difficulties  of  a  country. 

554.  Our  illustrations  have  thus  far  been  drawn  mainly 
from  the  commercial  transactions  of  two  countries,  real  or 
supposed.     We  have  perhaps  sufficiently  shown  that,  of  the 
amount  of  payments  falling  due  on  one  side  or  the  other  in  a 
given  period,  only  the  balance  will  require  to  be  discharged  in 
money,  the  principle  of  cancellation  being  applied  to  all  but 
that  excess. 

Even  this,  however,  would  involve  a  very  much  larger  use 
of  money  in  the  adjustment  of  national  balances  than  actually 
takes  place.  Although  the  total  exports  of  a  country  will 
always  tend  to  approach  its  total  imports,  yet  its  exports  to 
and  imports  from  any  single  country  may  be  very  unequal. 
Thus,  the  United  States  import  tea,  silk,  etc.,  to  an  enor- 
mous value,  from  China,  while  exporting  very  little  to  China. 
Again,  our  imports  from  England  are  A^ery  large,  but  our 
exports  to  that  country  are  vastly  greater  still.  If  the  United 
States  adjusted  its  accounts  with  each  foreign  country  sepa- 
rately, the  balances  requiring  to  be  paid  in  money  during  a 
year  would  rise  into  hundreds  of  millions  of  dollars. 

555.  To  further  reduce  the  balances  to  be  paid  in  money  ; 
to  still  further  extend  the  principle  of    the   cancellation  of 
indebtedness,  resort  is  had  to  a  common  market  of  exchange 
for  all  the  nations.     If,  for  example,  the  United  States  im- 
ports from  Great  Britain  manufactured  goods  to  the  value  of 
one  hundred  millions,  and  exports  to  Great  Britain  two  hund- 
red and  fifty  millions,  it  uses  its  favorable  balance  of  one 
hundred  and  fifty  millions  in  London  as  a  sort  of  bank  on 
which  to  draw  for  the  payment  of  its  indebtedness  to  many 
other  countries  from  which  it  imports  more  than  it  exports  to 
them.     For  example,  it  pays  its  Chinese  creditors  in  accepted 
bills  drawn  on  London  importers  of  American  wheat,  cotton 
or  petroleum.     These  bills  Chinese  merchants,  having  to  pay 
for    large    amounts  of   English  manufactures,  are   glad  to 


460  POLITICAL   ECONOMY 

get  possession  of  ;  and  thus  an  additional  body  of  indebted- 
ness is  canceled.  The  operation  of  this  force  is  greatly 
accelerated  by  the  course  of  events  which  have  made  London 
the  great  settling  place  for  the  transactions  of  international 
commerce.*  Prof.  Jevons,  in  his  work  on  "  Money  and  the 
Mechanism  of  Exchange,"  stated  that  there  were  then  (1875) 
no  less  than  sixty  important  colonial  and  foreign  banks  which 
had  their  own  London  offices  or  houses  ;  and  that  there  were, 
in  addition,  fully  one  thousand  foreign  and  colonial  houses  in 
correspondence  with  London  bankers.  Here,  then,  in  this 
Exchange  of  the  World,  as  Edmund  Burke  called  it,  a  hund- 
red years  ago,  meet  all  the  claims  of  all  the  creditors  in  the 
world,  and  all  the  acknowledgments  of  all  the  debtors  in  the 
world,  which  have  not  been  adjusted  nearer  home.  In  the 
portfolios  of  the  London  banker  or  exchange  broker  are 
found  bills  representing  the  shipment  of  every  kind  of 
agricultural  produce,  of  every  class  of  manufactured  goods, 
not  to  or  from  England  merely,  but  from  the  country  of  pro- 
duction, however  distant,  to  every  other  country  known  to 
commerce.  And  these  bills  are  of  all  amounts,  from  the 
pettiest  sums  up  to  thousands  of  pounds  sterling,  falling  due 
at  all  dates  from  to-morrow  up  to  this  day  six  months.  From 
this  varied  mass  to  pick  out  accepted  bills,  recognized  obli- 
gations which,  in  amount  and  time  of  maturity,  shall  cancel 
each  other,  is  a  work  to  which  the  highest  intelligence  is 
applied.  Although  the  aggregate  profits  are  large,  the  amount 
of  exchanges  thus  effected  is  so  enormous  that  the  per- 
centage charged  for  the  negotiation  is  very  small. 

556.  It  is  by  this  complicated  agency  that  the  balance  of 
payments  between  nations,  requiring  to  be  made  in  money,  is 
reduced  to  a  minimum.  Out  of  hundreds  or  thousands  of 
millions  of  "exchange"  negotiated,  the  bodies  of  indebted- 
ness which  bankers  or  brokers  can  not  find  means  to  offset 

*  Of  this  Mr.  Goschen  says  the  "primary  cause  is  to  be  found  in  the 
stupendous  and  never-ceasing  exports  of  England,  which  have  for  effect 
that  every  country  in  the  world,  being  in  constant  receipt  of  English 
manufactures,  is  under  the  necessity  of  making  remittance  to  pay  for 
them,  either  in  bullion,  in  produce,  or  in  bills." 


FOREIGN  EXCHANGES.  461 

amount  to  but  a  few  millions.  Except  for  the  continuous  pro- 
duction of  the  precious  metals  in  certain  countries  which 
thereby  become  gold  or  silver-exporting  countries,  and  except 
for  the  acts  of  government  in  replacing  metal  money  by  paper 
money,  or,  conversely,  in  resuming  specie  payments  after 
periods  of  suspension,  or,  again,  in  changing  "the  standard," 
from  silver  to  gold  or  gold  to  silver,  the  amount  of  metal 
money  which  would  be  required  to  go,  now  here  and  now 
there,  to  make  up  for  local  and  temporary  failures  of  coinci- 
dence between  the  amounts  to  be  received  and  the  amounts 
to  be  paid,  in  international  trade,  would  be  almost  inconsider- 
able, in  comparison  either  with  the  aggregate  of  commercial 
transactions  or  with  the  total  body  of  the  precious  metals  in  use. 

557.  Operating  Upon  the  Exchanges The    peculiarly 

important  and  responsible  position  which  London  occupies,  as 
the  center  of  the  exchange  transactions  of  the  world,  has 
led  to  the  establishment  of  a  well-recognized  policy  of  deal- 
ing with  the  outflow  of  gold  from  that  point,  whenever  such 
a  movement  is  caused  by  what  is  called  "  an  unfavorable  turn 
of  the  exchanges." 

In  spite  of  the  great  perfection  to  which  the  cancellation 
of  international  indebtedness  is  there  carried,  it  will  at  times 
happen  that  a  "  drain "  of  bullion  continues  so  long  as  to 
cause  acute  alarm  as  to  the  integrity  of  the  financial  system 
of  the  kingdom.,  When  the  act  of  1844  was  passed,  it  was 
believed  that  the  provisions  of  this  law,  to  the  effect  that  no 
bank  note  (beyond  the  fixed  amount  of  fifteen  million  pounds) 
should  be  issued  except  on  the  actual  deposit  of  an  equiva- 
lent amount  of  specie,  and  that,  conversely,  no  specie  should 
be  withdrawn  except  upon  the  surrender  of  an  equivalent 
amount  of  notes,  would  have  the  effect,  automatically,  to 
check  a  drain,  from  whatever  cause  proceeding.  Inasmuch- 
however,  as  the  painful  experiences  of  several  commercial  crises 
showed  that  this  force  could  not  always  be  relied  upon  as  suffi- 
cient,* the  directors  of  the  Bank  of  England  have  adopted 


*Bagehot's  "Lombard  Street"  will  be  found  most  interesting  and  in- 
structive to  an  advanced  student  in  economics  and  finance. 


462  POLITICAL    ECONOMY. 

the  policy  of  raising  the  rate  of  discount,  sharply  and  rapidly, 
whenever  signs  of  a  considerable  export  of  gold  shall  appear. 
Of  course,  the  decree  of  the  directors  can  absolutely  control 
the  rate  of  discount  only  upon  the  capital  which  the  Bank 
itself  has  to  loan  ;  but  the  moral  influence  of  such  an  act 
upon  the  joint-stock  and  private  banks  and  upon  individual 
capitalists  is  naturally  very  great,  and  the  general  rate  of 
interest  is  at  once  appreciably  affected. 

In  doing  this,  the  object  of  the  directors  of  the  Bank,  who 
deem  themselves,  by  the  force  of  tradition,  though  not  of  law,* 
largely  responsible  for  the  financial  integrity  of  the  kingdom, 
is  so  to  raise  the  rate  of  interest,  or  of  discount,  as  to  induce 
foreign  creditors,  who  have  the  right,  at  the  time,  to  demand 
gold  from  England,  to  leave  that  gold  for  awhile  in  England, 
thus  checking  a  "drain"  which  is  considered  dangerous.  By 
raising  the  rate  of  interest  at  once,  from  three  or  four  to  six 
or  eight  f  per  cent.,  the  profit  on  the  investment  of  funds  in 
England  is  made  so  great  that  any  foreign  creditor,  who  is 
not  absolutely  required  by  his  financial  circumstances  to  draw 
his  money  away  to  his  own  country,  feels  a  strong  induce- 
ment to  leave  it  still  longer  in  England. 

It  is  in  this  way  that  the  financial  authorities  of  the  kingdom 
seek  to  "tide  over"  a  highly  unfavorable  state  of  the 
exchanges  ;  and  it  may  be  said  that  the  policy,  although 
involving  a  resort  to  means  which  are  altogether  artificial  and 
highly  exceptional  in  finance,  uniformly  proves  successful. 
"  The  fact,"  said  Mr.  Goschen,  "  has  been  that  almost  every 
advance  in  the  bank  rate  of  discount  is  followed  by  a  turn  of  the 
exchanges  in  favor  of  England.  Foreign  creditors  give  their 
English  debtors  a  respite,  and  prefer  to  wait  longer  for  remit- 
tances, gaining  interest  meanwhile  at  the  profitable  English 
rate." 

558.  The  Special  Case  of  England  and  the  United  States.— 
We  have  said  all  that  the  limits  of  our  space  will  allow  concern- 

*  Walker  :  Money,  Trade  and  Industry,  pages  292-98. 
f  The  Bank  has,  in  pursuance  of  this  policy,  more  than  once  raised 
the  rate  of  discount  as  high  as  eleven  per  cent. 


BI-METALLISM.  463 

ing  foreign  exchange  in  general.  A  word  may,  however,  be 
added  regarding  the  exchange  between  England  and  the 
United  States.  The  valuation,  in  American  money,  of  the 
English  pound  sterling,  has  been  several  times  changed.  Prior 
to  1792,  the  pound  sterling  was  valued  at  $4.44  4-9,  according 
to  the  bullion  standard  of  the  Spanish  dollar,  then  universally 
current  among  us.  From  that  date  down  to  1834,  the  Ameri- 
can dollar  was  worth  97£  cents  in  gold,  at  which  rate  a 
pound  sterling  was  worth  $4.56^  cents.  By  the  coinage 
act  of  1834  our  standard  was  so  reduced  that  the  bullion 
contained  in  the  American  dollar  was  worth  only  9l£  cents, 
so  that  the  pound  sterling  became  worth  about  $4.87.  The 
United  States  custom-house  valuation  of  the  "sovereign," 
that  is,  the  coin  representing  the  English  pound  sterling,  was, 
however,  fixed  at  $4.84.  By  this  difference  in  bullion  value 
between  our  dollar  and  the  English  standard  money,  a  fictitious 
par  of  exchange  was  created  between  England  and  the  United 
States,  so  that  an  American  stock  or  bond  worth  $100  in  New 
York,  would  be  quoted  in  London  at  about  $109,  whenever  the 
amounts  respectively  to  be  paid  and  received  between  the  two 
countries  were  equal. 

By  an  act  of  Congress  of  January,  1874,  the  custom-bouse 
valuation  of  the  English  sovereign  was  again  changed,  this 
time  to  $4.8768/100,  at  which  point  it  now  remains.  The  Lon- 
don stock  exchange  responded  to  this  action,  the  same  year,  by 
valuing  the  American  dollar  at  four  English  shillings,  equiva- 
lent to  about  97£  cents  of  our  money,  from  which  it  results 
that  American  stocks  or  bonds  worth  $100  are  quoted  in  Lon- 
don at  about  $102.75,  subject  to  variations  on  account  of  the 
fluctuations  in  commercial  transactions. 

XIV. 

BI-METALLISM. 

559.  The  question  of  Bi-metallism  is  to  be  decided  solely 
upon  the  principles  which  have  been  laid  down  in  Part  III.,  as 
governing  the  value  of  money  ;  but  the  question  is  one  of  so 
much  popular  interest  and  has  been  so  confused  by  the  pas- 


464  POLITICAL    ECONOMY. 

sionate  controversy  waged  over  it,  that  it  may  be  worth  while 
to  set  the  points  at  issue  fairly  forth,  for  the  assistance  of  the 
beginner  in  economics. 

And  first  let  us  depict  the  situation,  in  view  of  which  the 
controversy  has  arisen. 

560.  The  Gold-Using  Countries — "We  find  one  group  of 
States,  of  great  importance  in  international  commerce,  whose 
habits  of  trade  make  gold  money,  or  bank  notes  predicated 
upon  a  reserve  of  gold  money,  the  most  agreeable  and  con- 
venient medium  of  exchange.  These  are  rich  countries,  hav- 
ing vast  accumulations  of  wealth,  derived  from  the  industry 
of  the  past.  In  them,  because  their  productive  power  is  large, 
wages  are  high.  In  them,  trade  and  industry  are  organized 
with  a  great  degree  of  complexity  and  minuteness.  It  is  not 
needful  for  our  present  purpose  to  name  all  the  countries  of 
this  group  ;  but  clearly  it  embraces  England,  France,  Bel- 
gium and  Holland,  in  Europe,  and  on  this  continent,  the 
United  States. 

It  is  admitted,  that,  in  these  countries,  the  use  of  silver  as 
the  ordinary  money  of  trade  would  be  attended  with  great 
inconvenience,  and  would  meet  so  much  prejudice  on  the  part 
of  the  people  as  to  render  it  inexpedient  for  any  government 
to  propose  the  introduction  of  that  metal  as  the  sole  money  of 
full  legal-tender  power.  These  countries,  however,  use  a  large 
amount  of  silver  as  fractionary  money,  for  the  purpose  of 
making  change  in  transactions,  and  for  retail  purchases. 

561.  The  Silver-Using  Countries.— On  the  other  hand, 
we  find  a  group  of  countries,  embracing  an  aggregate  number 
of  inhabitants  several  times  greater  than  those  previously 
mentioned,  in  which  the  facts  of  industry  and  the  habits  of 
the  people  respecting  exchange  are  such  as  to  make  gold  an 
impossible  money.  Such  countries,  beyond  a  doubt,  are 
China  and  India,  where  the  ordinary  wages  of  labor  range 
from  two  to  eight  cents  a  day.  There  are  other  countries 
— some  in  Europe  and  some  in  America — settled  by  the  people 
of  Southern  Europe,  in  which  wages  range  from  twelve  to 
thirty  cents  a  day,  in  some  of  which  the  ordinary  use  of  gold 
as  money  can  not  be  pronounced  exactly  impossible  ;  yet 


BI-METALLISM.  465 

where  reasons,  both  of  practical  convenience  and  of  sentiment 
and  habit,  give  a  decided  preference  to  silver  for  that  pur- 
pose :  a  preference  so  decided  that  it  is  not  reasonable  to 
anticipate  that  these  countries  will  soon,  if  ever,  pass  over 
from  the  silver-using  to  the  gold-using  group  of  countries. 
The  group  of  countries  in  respect  to  which  we  have  spoken  of  the 
use  of  silver  money  as  more  consonant  with  the  facts  of  industry 
and  the  habits  of  the  people  than  the  use  of  gold,  comprise 
the  Spanish  American  states,  Russia,  and  most,  if  not  all,  of 
the  southern  states  of  Europe. 

I  have  said  that  it  is  not  necessary  for  our  present  purpose 
that  all  commercial  countries  should  be  named  on  the  one 
side  or  the  other  of  the  dividing  line  drawn.  Controversy 
might  easily  arise  as  to  the  proper  location  of  Italy  or 
Germany,*  perhaps  also  of  Austria  ;  but  we  have  no  call  to 
undertake  the  question.  It  is  enough  if  it  appear  not  only 
that  there  is  one  great  group  of  states  which,  in  fact,  use  gold 
as  their  principal  money,  and  another  great  group  which  use 
silver,  but  that  the  preference  for  the  one  metal  or  the  other 
is  so  far  determined  by  economic  causes,  such  as  the  rate  of 
wages,  the  degree  of  accumulated  wealth,  etc.,  as  to  make  it 
highly  probable  that  the  two  money  metals  will  continue  to  be 
used,  as  now,  each  within  a  wide  field  that  is  peculiar  to  itself. 

562.  What  the  Bi-Metallist  Proposes.— It  is  this  situation 
which  the  bi-metallist  has  in  view  when  he  propounds  his 
scheme.  Accepting  the  existence  of  a  large  group  of  coun- 
tries in  which  gold  naturally  circulates  as  money  and  another 
in  which  silver  is  so  used,  he  proposes  to  create  a  league  of 
states,  some  of  which  are  what  we  may,  for  brevity,  call  silver 
states,  and  some,  gold  states,  which  shall,  each  for  itself,  but 
by  simultaneous  action,  establish  the  free  coinage  f  of  the  two 

*  If,  for  example,  Germany  were  resolved  into  its  constituent  States, 
several  would  naturally  gravitate  towards  the  gold-using  group  ;  more, 
still,  towards  the  silver-using  group.  In  like  manner,  Northern  Italy 
might  go  to  the  gold-using  group,  while  Southern  Italy  would  tend  the 
other  way. 

\  The  distinction  between  free  and  gratuitous  coinage  is  noted  in 
par.  196. 


466  POLITICAL  ECONOMY. 

metals,  making  the  money  of  one  metal  to  be  legal-tender 
indifferently  with  money  of  the  other  metal,  in  payment  of 
debts,  at  a  certain  ratio  determined  upon  in  advance  by  the 
consenting  states.  Say,  for  example,  15^  dwt.  of  silver  to  1 
dwt.  of  gold,  the  ratio  adopted  by  the  states  of  the  Latin 
Union,  viz.,  France,  Italy,  Belgium  and  Switzerland.  The 
bi-metallist  asserts  that,  if  such  league  be  formed  between  a 
considerable  number  of  important  commercial  countries,  even 
though  it  does  not  embrace  all  countries,  the  relative  value  of 
gold  and  silver  will  be  kept  close  to  the  mint-ratio  so  estab- 
lished. 

When  asked  what  is  the  object  in  view  in  such  an  interna- 
tional arrangement ;  what  advantage  is  anticipated  of  suffi- 
cient importance  to  make  it  worth  while  to  endeavor  to  over- 
come the  natural  reluctance  of  nations  to  bind  themselves  to 
act  in  common  respecting  matters  which  touch  their  sov- 
ereignty, to  make  it  worth  while  to  resort  to  international 
conferences  and  congresses,  the  bi-metallist  adduces  two  con- 
siderations which  he  alleges  to  be  of  vast  importance  to  the 
world's  trade  and  industry. 

563.  A  Par  of  Exchange  *  Desired  between  Gold  Coun- 
tries and  Silver  Countries.— The  first  is  the  establishment 
of  a  par  of  exchange  between  silver-using  and  gold-using  coun- 
tries. 

We  saw  (par.  543)  that  between  two  countries  having  the 
same  money  metal,  a  par  of  exchange  exists.  This  par  of 
exchange  is  realized  whenever  the  sum  of  the  payments  to  be 
made  in  one  country  by  merchants  of  the  other  country,  within 
a  certain  brief  period,  is  equal  to  the  sum  of  the  payments  to 
be  made  in  the  latter  by  the  merchants  of  the  former  country, 
in  which  event  a  merchant  paying  down  a  certain  amount, 
say  1,000  ounces,  of  the  common  money  metal,  say  gold,  in 
his  own  country,  can  thereby  purchase  the  right  to  receive, 
himself,  or  through  his  agent  or  representative — his  creditor, 
let  us  suppose — 1,000  ounces  of  that  metal  in  the  country  in 


*  The  question  of  foreign  exchanges  has  been  treated  under  a  preceding 
title. 


Bl-ME  TA  LLISM.  467 

question.  Exchange  will,  in  fact,  fluctuate  about  this  par  of 
exchange,  now  above  and  now  below,  according  to  the  move- 
ments of  supply  and  demand,  as  these  are  determined  by  the 
relative  amounts  of  debts  to  be  paid  and  of  payments  to 
be  received,  respectively,  in  the  course  of  trade  between  the 
two  countries.  The  outside  limits  of  these  movements  of 
exchange  are,  as  we  saw,  fixed  by  the  cost  of  exporting  or 
importing  specie. 

But  between  two  countries  having  money  of  different  metals, 
say  of  gold  in  one  country  and  of  silver  in  the  other,  there  is 
no  par  of  exchange,  irrespective  of  a  bi-metallic  league  like 
that  under  consideration.  Wholly  in  addition  to  the  usual 
movements  of  exchange,  the  question,  how  much  gold  an 
Indian  merchant  can  obtain  the  right  to  receive  in  London, 
by  paying  down  a  certain  amount  of  silver  in  Calcutta,  de- 
pends on  the  silver  price  of  gold  and  the  gold  price  of  silver, 
at  the  time.  And  as  the  two  metals  have  their  separate 
sources  of  supply,  and,  to  a  certain  extent,  independent  uses, 
whether  in  the  arts  or  as  money,  their  respective  values  are 
likely  to  fluctuate  greatly. 

564.  It  is  a  necessary  result  of  this  that  much  more  uncer- 
tainty is  involved  in  trade  between  a  gold  and  a  silver  coun- 
try than  between  two  gold  countries,  or  two  silver  countries  : 
the  chances  of  undeserved  losses  or  unearned  gains  are  greatly 
increased.  No  merchant  in  a  silver  country  selling  to  a  gold 
country,  no  merchant  in  a  gold  country  selling  to  a  silver 
country,  can  know  for  how  much  of  the  metal  which  forms 
the  money  of  the  country  to  which  he  exports  his  wares  he 
must  sell  them,  in  order  to  make  himself  good  for  the  metal 
which  he  has  expended  at  home  in  producing  or  purchasing 
them. 

The  English  merchant  who  sells  to  Calcutta  or  Hong  Kong 
or  Mexico,  may  do  all  that  lies  within  him  with  the  highest 
wisdom  and  skill  ;  he  may  buy  the  right  sort  of  goods  and  buy 
them  at  a  bargain,  ship  them  at  the  proper  season  to  the  best 
market,  sell  them  at  the  highest  ruling '  prices,  and  bring  the 
proceeds  safely  home  to  Liverpool,  yet  a  fall  in  silver,  between 
the  sale  of  the  goods  and  the  receipt  of  the  proceeds,  may 


468  POLITICAL  ECONOMY. 

strip  him  of  all  the  profits  of  his  venture,  of  all  the  fruits  of 
the  year's  business,  or  even  entail  a  heavy  loss  upon  him. 

It  is  true  that,  in  one  sense,  what  one  merchant  in  an  indi- 
vidual case  loses,  some  other  merchant,  or  some  banker,  or 
some  speculator,  may  gain.  But  it  is  not  true  that  unearned 
gains  encourage  industry  to  the  extent  to  which  undeserved 
losses  discourage  it.  On  the  contrary,  not  only  does  the  good 
done  almost  always  fall  far  short  of  compensating  for  the  evil 
wrought,  but  it  often  happens  that,  as  mercy  between  man 
and  man  blesses  both  him  that  gives  and  him  that  takes,  so 
the  sums  of  wealth  transferred  by  speculation  or  accident,  not 
only  leave  the  loser  grieving  and  crippled,  but  curse  and  blight 
him  whom  they  seemingly  enrich. 

565.  Now  this  grievous  disadvantage  under  which  inter- 
national trade  suffers,  the  bi-metallist  professes  to  be  able  to 
remove,  through  the  scheme  that  has  been  described.  It  is 
not  now  the  question  whether  this  can,  indeed,  be  done  ;  but 
whether  the  result  be  desirable,  and,  if  so,  whether  desirable 
in  a  degree  to  justify  a  considerable  effort,  perhaps  some  sac- 
rifice. 

It  is  one  of  the  accidents  of  the  controversy  over  this  ques- 
tion that  the  mono-metallist  writers  are  estopped  from  deny- 
ing that  this  result  would,  if  practicable,  be  desirable  in  a  very 
high  degree.  There  are  but  few  of  those  writers  who  have 
not,  in  discussion  of  the  effects  of  inconvertible  paper  money, 
treated  the  loss  of  a  par  of  exchange  with  foreign  nations  (par. 
220)  as  a  serious  disaster.  In  dealing  with  such  a  case,  for  exam- 
ple, as  that  of  France  between  1871  and  1877,  they  have  attrib- 
uted most  unfortunate  consequences  to  the  inconvertibility  of 
the  money  of  the  Republic  into  that  which  was  the  money  of 
the  commercial  world,  even  though  the  notes  of  the  Bank  of 
France  were  at  a  very  slight,  often  hardly  appreciable,  dis- 
count. In  the  same  way  these  writers,  during  the  continuance 
of  the  American  suspension,  1862  to  1879,  were  accustomed 
(and  rightly)  to  attribute  to  the  inconvertibility  of  the  green- 
backs most  injurious  effects  upon  the  trade  and  production  of 
the  United  States,  and  this,  even  after  the  premium  on  gold 
had  sunk  to  a  low  average,  and  had  ceased  to  fluctuate  vio- 


BI-ME  TA  LLISM.  469 

lently  or  rapidly.  "Any  degree  of  depreciation,  however 
small,  even  the  liability  to  depreciation,  without  its  reality," 
to  use  Mr.  Bagehot's  phrase,  was  declared  to  be  a  cause  of 
mischief,  to  be  eradicated  by  the  most  heroic  efforts  of  the 
suffering  nation,  at  almost  any  sacrifice. 

566.  The  Greater  Stability  of  Value  in  Bi-metallic  Money . 
— A  second  benefit  which,  according  to  the  bi-metallist  claim, 
would  result  from  the  establishment  of  an  international  league 
for  the  free  coinage  of  both  metals,  as  indifferent  legal  tender, 
at  a  certain  fixed  ratio,  in  payment  of  debts,  is  that  the  two 
metals,  thus  bound  together,  would  constitute  a  better  money 
than  either  metal  by  itself  could  be.  The  inequalities  of  min- 
ing production  would  tend  in  a  degree  to  equalize  each  other, 
with  the  result  of  greater  uniformity  in  the  production  of  the 
compound  mass,  and  hence  of  greater  steadiness  in  the  value 
of  money. 

Here,  again,  the  mono-metallists  are  at  a  controversial  disad- 
vantage. In  order  to  establish  the  impracticability  of  the 
bi-metallic  scheme,  they  have  dwelt  strongly  on  the  tendency 
of  the  two  metals  to  vary  widely  in  value,  and  this  view  is 
fully  borne  out  by  the  facts  of  the  last  three  or  four  centu- 
ries.* But  this  argument  against  the  practicability  of  the 
bi-metallic  scheme  virtually  amounts  to  an  admission  of  the 
merits  of  that  scheme,  if  found  practicable. 

*  Take  the  present  century  only,  for  illustration.  When  the  century 
opened,  silver  was  in  course  of  rapid  production.  Three  dollars' 
worth  of  silver  was  taken  out,  where  one  dollar's  worth  of  gold  was  pro- 
duced. Then  came  the  series  of  South  American  and  Mexican  revolts 
and  revolutions,  between  1809  and  1829,  by  which  mining  machinery  was 
destroyed,  mining  populations  scattered,  and  the  most  prolific  mines  of 
the  world  closed.  Mr.  Jacob  estimates  that  the  stock  of  the  precious 
metals  in  civilized  hands  fell  off  one-sixth  in  those  twenty  years.  But 
gold  now  came  in  to  fill  the  void.  In  1823,  the  mines  of  the  Oural  began 
to  yield  largely,  while  about  1830  the  gold  sands  of  Siberia  became 
known.  And  now  only  68  cents'  worth  of  silver  was  produced  to  a 
dollar's  worth  of  gold. 

In  1848  and  1851  came  the  gold  discoveries  of  California  and  Australia, 
and  so  altered  was  the  relative  production  of  the  two  metals  that  only  27 
cents'  worth  of  silver  was  taken  out,  to  a  dollar's  worth  of  gold  !  After 
1861,  however,  the  facts  of  production  became  more  favorable  to  silver. 


47°  POLITICAL  ECONOMY. 

I  think  it  must  be  conceded,  on  this  statement,  that  the 
bi-metallic  scheme,  if  it  could  be  carried  out  so  as  to  realize  the 
expectations  of  its  advocates,  would  confer  very  great  benefits 
upon  international  trade,  and,  by  consequence,  upon  the  pro- 
duction of  wealth.* 

567.  Is  it  Practicable?— Let  us,  then,  inquire  what  are  the 
economic  conditions  of  the  case  ;  how  far  it  is  reasonable  to 
believe  that  this  scheme  could  be  successfully  established. 

What  is  the  force  to  which  the  bi-metallist  looks  to  restrain 
the  tendency  to  divergence  between  the  values  of  the  two 
money  metals,  silver  and  gold  ?  It  is  evident  that  any  rational 
scheme  to  influence  value  must  aim  at  affecting  either  supply 
or  demand.  Can,  then,  government  influence  the  supply  of  or 
the  demand  for  a  money  metal  ?  Clearly,  unmistakably,  yes. 
Government  can  in  a  very  great  degree  influence  the  demand 
for  either  of  the  money  metals  by  coining  it  into  money  and 
conferring  on  the  coin  legal  tender  power. 

In  1873  began  a  still  further  movement  in  the  same  direction.  The 
director  of  the  United  States  mint  estimated  the  world's  production  of 
gold  in  1884  at  one  hundred  and  two  million  dollars,  and  of  silver  (at 
16 : 1  of  gold)  at  one  hundred  and  sixteen  million  dollars. 

*  I  do  not  here  present  the  argument  from  the  STATUS  in  favor  of  the 
remonetization  of  silver  in  Europe  and  America,  as  money  of  full  legal 
tender  power,  at  a  certain  ratio  to  money  of  gold,  under  free  coinage. 
That  argument  has  respect  to  the  vast  bodies  of  debts  and  fixed  charges, 
both  public  and  private,  contracted  before  the  German  demonetization  of 
silver  (say,  1873).  It  is  urged  that  to  require  these  debts,  whether  interest 
or  principal,  or  both,  to  be  paid  in  money  whose  purchasing  power  has 
been  enhanced  by  the  diminution  of  its  volume  through  the  extrusion  of 
silver  (except  as  small  change)  from  the  money  system  of  Europe  and 
America,  will  prove  both  a  grievous  injustice,  as  b'etween  debtor  and  credi- 
tor, and  a  great  source  of  injury  to  trade  and  production.  The  English  eco- 
nomic statisticians  are  generally  agreed  that  the  purchasing  power  of 
gold  has  largely  increased  since  the  German  demonetization.  How 
far  this  has  been  in  consequence  of  that  demonetization,  is  matter  of  dis- 
pute. The  aggregate  amount  of  national  debts  is  now  stated  at 
$27,000,000,000.  There  are,  in  addition,  vast  bodies  of  public  or  politi- 
cal indebtedness,  on  the  part  of  counties,  cities  and  towns.  Then  we 
have  the  enormous  mass  of  corporate  (industrial),  and  private  debts,  the 
burden  of  which  (at  any  time)  depends  primarily  upon  the  purchasing 
power  of  the  money  in  which  interest  or  principal  is  to  be  paid. 


BI-ME  7  'A  LLISM.  47 1 

To  illustrate  this,  let  us  suppose  that,  in  any  country,  both 
gold  and  silver  are  made  legal  tender  in  payment  of  debts,  at 
the  ratio  of  15^  of  silver  to  1  of  gold  :  that  is,  the  law  decrees 
that  a  debtor  may  extinguish  an  obligation  by  the  payment  of 
coins  containing  a  certain  number  of  ounces  of  gold,  or,  at  his 
option,  coins  containing  fifteen  and  a  half  times  that  number 
of  ounces  of  silver.  Let  it  be  assumed  that,  at  the  moment  of 
the  decree,  this  was  the  actual  market  ratio  between  the 
metals. 

Let  it  now  be  supposed  that  causes,  natural  or  commercial, 
that  is,  affecting  the  supply  of  one  metal  or  the  other, 
or  affecting  the  demand  for  the  one  or  the  other,  begin 
to  operate  to  produce  a  divergence  from  this  ratio  :  say,  to 
make  an  ounce  of  gold  worth  15.60  ounces  of  silver,  what  will 
occur  ?  The  bi-metallic  principle  will  at  once  begin  to  act  in 
restraint  of  this  movement  toward  divergence.  How  will  it 
operate  ?  Through  the  desire  of  every  debtor  to  meet  his 
maturing  obligations  in  the  cheapening  metal.  All  debtors 
will,  in  the  case  supposed,  seek  silver.  This  extension  of 
demand  acts  directly  in  contravention  of  the  force  which  is 
lowering  its  value.  On  the  other  hand,  the  metal — gold — 
which  is  tending  to  become  dearer,  from  that  fact  falls  out  of 
demand.  No  debtor  seeks  it  as  the  means  of  paying  his  debts. 
This  diminution  of  demand  at  once  operates  in  counteraction 
of  the  forces  tending  to  raise  the  value  of  gold. 

568.  The  Opinion  of  Mono-Metallic  Writers.— Now,  is 
this  a  purely  fanciful  view  of  the  subject,  taken  only  by  advo- 
cates of  the  bi-metallic  scheme  ?  On  the  contrary,  it  has  been 
seen  in  operation  over  extensive  countries,  of  great  commercial 
importance,  through  long  periods  of  time  ;  and  the  validity  of 
the  cause  is  fully  confessed  by  mono-metallic  writers  of  the 
highest  reputation. 

M.  Chevalier,  the  eminent  French  economist,  writing  of  this 
system  as  it  prevailed  in  his  own  country  in  1857,  when,  in 
consequence  of  the  great  gold  discoveries  in  California  and 
Australia,  gold  was  tending  to  fall  and  silver  to  rise,  and  thus 
to  pull  away  from  the  mint  ratio  of  15-J-  :  1,  then  established 
in  France,  speaks  thus  emphatically :  "  Whilst  this  state  of 


47 2  POLITICAL   ECONOMY. 

things  lasts,  it  will  be  impossible  at  London,  Brussels,  Ham- 
burg, or  even  at  New  York,  or  at  any  other  great  center  of 
commerce,  for  gold  to  fall  much  below  15£  times  its  weight 
in  silver."  And  Prof.  Cairnes,  writing  of  the  same  period, 
said  :  "  The  crop  of  gold  has  been  unusually  large  ;  the 
increase  in  the  supply  has  caused  a  fall  in  its  value  ;  the  fall 
in  its  value  has  led  to  its  being  substituted  for  silver ;  a  mass 
of  silver  has  thus  been  disengaged  from  purposes  which  it  was 
formerly  employed  to  serve  ;  and  the  result  has  been  that  the 
two  metals  have  fallen  in  value  together" 

Mr.  Bagehot  wrote  in  the  London  Economist :  "  Whenever 
the  values  of  the  two  metals  altered,  these  [bi-metallic]  coun- 
tries acted  as  equalizing  machines  ;  they  took  the  metal  which 
fell,  they  sold  the  metal  which  rose  ;  and  thus  the  relative 
value  of  the  two  was  kept  at  its  old  point." 

And  the  late  Prof.  Jevons,  writing  in  1874,  under  the  title, 
the  Equivalence  of  Commodities  (see  par.  142),  says  :  "  It  is 
upon  this  principle  that  we  must  explain  the  extraordinary 
permanence  of  the  ratio  of  exchange  of  gold  and  silver  :  that 
thi§  fixedness  of  ratio  does  not  depend  upon  the  amount  and 
cost  of  production  is  proved  by  the  very  slight  effect  of  the 
Australian  or  Californian  discoveries." 

And  elsewhere  Prof.  Jevons  thus  illustrates  the  compensa- 
tory action  of  the  two  metals  :  "  Imagine  two  reservoirs  of 
water,  each  subject  to  independent  variations  of  supply  and 
demand.  In  the  absence  of  any  connecting  pipe,  the  level  of 
the  water  in  each  reservoir  will  be  subject  to  its  own  fluctua- 
tions only.  But,  if  we  open  a  connection,  the  water  in  both 
will  assume  a  certain  mean  level,  and  the  effects  of  any  exces- 
sive supply  or  demand  will  be  distributed  over  the  whole 
area  of  both  reservoirs. 

"  The  mass  of  the  metals,  gold  and  silver,  circulating  in 
Western  Eui-ope  in  late  years,  is  exactly  represented  by  the 
water  in  these  reservoirs,  and  the  connecting  pipe  is  the  law  of 
the  7th  Germinal  an  XI,*  which  enables  one  metal  to  take  the 
place  of  the  other  as  an  unlimited  legal  tender." 

*  French  revolutionary  style  for  the  year  1803,  the  date  commonly 
assigned  to  the  establishment  of  the  bi-metallic  system  in  France. 


BI-METALLISM. 


473 


569.  Bi-Metallism  not  a  Chimera.-We    see,  thus,  that 
the  bi-metallic  scheme  is  based  upon  economic  principles  which 
are  incontestable.      If  it  be  worth  while  for  any  nation  to 
undertake  this  work  of  holding  silver  and  gold  together,  it 
can  do  so  just  as  long  as  it  has  any  considerable  quantity  of 
the  metal  which  at  the  time  tends  to  become  dearer,  to  dis- 
pose of.     If  it  be  worth  while  for  any  group  of  nations  to 
undertake  this,  they  can  maintain  the  approximate  equivalency 
of  the  two  metals  just  as  long  as  their  joint  stock  of  the  metal 
which  at  that  time  tends  to  become  dearer  remains  unex- 
hausted.     Every  additional  state  that  joins  the  bi-metallic 
group  strengthens  the  system    in  two    ways,  first,  by  con- 
tributing to  the  supply  of  the  metal  which  may,  under  the 
natural  or  commercial  conditions  prevailing  at  the  time,  tend 
to  become  dearer,  and,  secondly,  by  withdrawing  itself  from 
the  list  of  States  which  may  possibly  contribute  to  the  demand 
for  that  metal. 

570.  The  Operation  Illustrated.— We  may  suppose  the 
commercial  world  to  be  divided  into  sixteen  states,  A  to  P,  the 
first  six  having  the  single  gold  standard  ;  four,  G  to  J,*  the 
so-called   double    standard    of    gold    and    silver,    under  the 
bi-metallic  system  :  say  at  15^  :  1  ;  the  remaining  states  hav- 
ing the  single  standard  of  silver,  thus  : 

A,  B,  C,  D,  E,  F,  (G,  H,  I,  J,)  K,  L,  M,  N,  O,  P. 

It  is  evident  that,  in  the  event  of  a  change  in  the  condi- 
tions of  supply  tending  to  cheapen  silver  relatively  to  gold, 
the  new  silver  would  pass  into  the  countries  of  the  double 
standard,  G  to  J,  and  be  there  exchanged  for  gold,  at  the 
rate  of  15£  :  1,  with  some  small  premium  as  the  profit  of 
the  transaction,  and,  as  a  result,  the  gold  displaced  from 
the  circulation  would  be  exported  to  the  gold  countries,  A 
to  F,  in  settlement  of  trade  balances. 

The  rapidity  with  which  this  substitution  of  silver  for 
gold  in  the  bi-metallic  states  will  proceed  must  depend, 
first,  on  the  force  of  the  natural  causes  operating  to  cheapen 
silver  ;  and,  secondly,  on  the  force  of  the  commercial  causes 
operating  to  maintain  or  advance  the  value  of  gold.  The 
length  of  time  during  which  the  drain  of  the  dearer  metal 


474  POLITICAL  ECONOMY. 


be  sustained  without  exhaustion,  will  (given  the  rate  of 
movement)  depend  solely  upon  the  stock  of  that  metal 
existing  in  the  bi-metallic  states  when  the  drain  begins. 

But  chief  among  the  causes  operating  to  advance  the  value 
of  gold,  is  the  exclusive  power  with  which  gold  is  invested 
by  law  to  pay  debts  in  states  A  to  F  ;  while  the  stock  of  the 
dearer  metal  available  to  sustain  the  drain  described,  is 
made  up,  not  of  all  the  gold  in  the  sixteen  states  A  to  P,  or 
in  the  ten  states  A  to  J,  but  only  of  the  gold  in  the  four  bi- 
metallic states,  G  to  J. 

Now,  let  us  suppose  the  sixteen  commercial  states  to  be 
somewhat  differently  divided,  as  follows  : 

A,  B,  C,  D,  (E,  F,  G,  H,  I,  J,  K,  L,)  M,  N,  O,  P. 

The  bi-metallic  system  is  now  not  twice  merely,  but  many 
times  as  strong,  since  not  only  is  the  amount  of  the  dearer 
metal  subject  to  drain  increased,  but  the  demand  for  that 
metal,  in  preference  to  silver  at  15-J  :  1,  how  comes  from  four 
countries  only,  instead  of  six,  as  formerly. 

The  transfer  of  still  another  state  from  each  of  the  two 
single-standard  groups,  would  vastly  increase  the  stability  of 
the  bi-metallic  system. 

A,  B,  C,  (D,  E,  F,  G,  H,  I,  J,  K,  L,  M,)  N,  O,  P.  Not 
only  would  the  base  of  the  system  be  broadened  by  bringing 
the  dearer  metal  of  ten  states,  D  to  M,  under  tribute,  in  the 
event  of  changes  operating  on  the  supply  of  either  metal  ; 
but  the  force  threatening  the  equilibrium  of  the  system  would 
be  reduced,  since  the  demand  for  the  dearer  metal  would  now 
come  from  only  three  states  :  A,  B,  C,  in  the  case  of  a  cheap- 
ening of  silver  relatively  to  gold  ;  N,  O,  P,  in  the  case  of  a 
cheapening  of  gold  relatively  to  silver.  Those  three  states 
can  not  take  the  dearer  metal  indefinitely.  They  would  soon 
be  surfeited.  A  further  increase  of  money  in  them  would  be 
followed  by  a  fall  in  its  value,  which  would  soon  proceed  so 
far  as  to  bring  the  metals  together  again. 

And  it  is  to  be  noted  that,  with  a  bi-metallic  league  embrac- 
ing so  many  states,  those  which  tended  naturally  to  the  use  of 
.silver  as  money  would  continue  to  use  silver  predominantly  ; 
<hose  which  tended  to  use  gold  would  still  use  gold  as  their 


THE  REVENUE   OF    THE   STATE.  475 

main  money  of  circulation.  Whenever  causes  began  to 
operate  to  cheapen  silver  relatively  to  gold  (at  the  mint  ratio 
between  the  two  metals  established  by  the  league),  the  gold 
using  countries  would  take  some  additional  silver  and  discard 
some  gold  ;  but  this  increase  of  demand  for  silver  and  dimi- 
nution of  demand  for  gold  would  check  the  movement  to 
divergence  before  the  character  of  the  circulating  medium 
became  greatly  changed.  In  the  event  of  a  cheapening  of 
gold  relatively  to  silver,  the  substitution  of  gold  for  silver,  in 
the  silver-using  states,  to  the  extent  only  of  a  small  fraction 
of  their  circulation,  would  suffice  to  put  a  stop  to  the  move- 
ment. 

571.  This   is  the  bi-metallic   scheme.     The   question   of 
securing  the  co-operation  of  independent  states  to  any  end,  is 
a  political,  not  an  economic  question  :  that  is,  the  desired  end 
is  to  be  obtained  by  the  action  of  governments,  moved  by 
various  considerations  and  interests,  and  not  by  the  laws  of 
trade. 

Our  limits  will  not  permit  us  to  enter  into  a  discussion  of 
the  causes  which  have,  since  1874,  suspended  the  bi-metallic 
policy  of  the  Latin  Union,  or  of  the  probabilities  of  the  future 
respecting  the  indifferent  use  of  gold  and  silver  as  money. 

XV. 

THE   REVENUE    OF  THE    STATE. 

572.  The  revenue  of  the  State  may  be  derived  from  : 
I.  Voluntary  Contributions.* 

It  is,  to  most  of  us,  difficult  to  conceive  a  state  of  society 
where  the  expenses  of  government  should  be  met  through 
spontaneous  self -assessment ;  yet,  in  a  more  primitive  condi- 
tion, such  a  state  of  things  has  existed  widely,  f  and  in  a 
few  happy  instances  has  come  down  nearly  to  our  day. 

*  Voluntary  Taxation,  says  Emile  de  Girardin,  it  is  the  State  stimu- 
lated ;  it  is  the  State  economical ;  it  is  the  State  Republican  and  Demo- 
cratic. 

f  The  words  Dona,  Benevolences,  etc.,  in  the  history  of  revenue, 
testify  to  the  original  assumption  that  contribution  was  voluntary. 


476  POLITICAL  ECONOMY. 

The  papal  revenues  *  may  perhaps  be  brought  under  this 
title.  Adam  Smith  cites  Hamburg,  Basle,  Zurich,  Under- 
wald,  Holland,  and  other  communities,  where  the  self -valuation 
of  the  citizen  was  accepted. 

An  American,  f  long  resident  in  Europe,  thus  describes  his 
experience  in  a  community  where  the  principle  of  self -assess- 
ment still  survived : 

"  For  four  years  it  was  the  good  fortune  of  the  present 
writer  to  be  domiciled  in  one  of  these  communities.  Incredi- 
ble as  it  may  seem  to  believers  in  the  necessity  of  a  legal 
enforcement  of  taxes  by  pains  and  penalties,  he  was,  for  that 
period,  by  law  and  usage,  in  the  strictest  sense  of  the  term, 
his  own  assessor  and  his  own  tax  gatherer.  In  common  with 
the  other  citizens,  he  was  invited,  without  sworn  statement  or 
declaration,  to  make  such  contribution  to  the  public  charges 
as  seemed  to  him  just  and  equal.  That  sum,  uncounted  by 
any  official,  unknown  to  any  but  himself,  he  was  asked  to 
drop,  with  his  own  hand,  into  a  strong  public  chest ;  on  doing 
which,  his  name  was  checked  off  the  list  of  contributors,  his 
duty  done." 

573.  II.  Lucrative  Prerogatives,  Public  Property,  and 
State  Enterprise. 

The  following  may  be  named  as  the  chief  sources  of  reve- 
nue under  this  head  : 

(1.)  Rent-charges  in  favor  of  the  state  as  the  proprietor  of 
all  lands.  This  has  been  fully  discussed  under  the  title  :  the 
Nationalization  of  the  Land  (pars.  496-505). 

(2.)  Escheat  :  the  principle  that  the  state  is  the  proprietor 
of  all  property  to  which  individual  titles  or  claims  are  lost. 
This  principle  was  early  established  in  all  countries  whose 
legal  or  fiscal  history  we  know. 

It  is  evident  that  the  scope  of  this  principle  will  widen  or 

*The  Pope  was  the  greatest  capitalist  of  the  Middle  Ages.  The 
British  Parliament  at  one  time  declared  the  revenues  derived  from  the 
people  of  that  Kingdom  by  the  Pope  to  be  five  times  as  great  as  those 
obtained  by  the  Crown. 

f  Rev.  Dr.  Warren,  President  of  Boston  University. 


THE  REVENUE   OF   THE  STATE.  477 

contract  in  correspondence  with  the  laws  regulating  the 
descent  and  bequest  of  property  and  prescribing  the  times 
and  modes  of  proving  claims.  Under  the  feudal  system, 
escheat  constituted  a  most  important  source  of  revenue.  In 
England,  the  right  of  devising  real  property  did  not  exist 
after  the  Conquest,  until  the  time  of  Henry  VIII.  Modern 
society,  however,  has  given  continually  wider  extension  to  the 
power  of  bequest  and  the  principle  of  inheritance,  until 
escheat  has  ceased  to  be  of  much  importance. 

In  1795,  the  great  English  law  reformer,  Jeremy  Bentham, 
in  a  pamphlet  entitled,  "  Escheat  vice  Taxation,"  propounded 
a  scheme  by  which  the  entire  revenue  of  the  state  should  be 
derived  from  this  source. 

Bentham  proposed  an  extension  of  the  existing  law  of 
escheat,  "  a  law  coeval  with  the  very  first  elements  of  the  Con- 
stitution," and  a  corresponding  limitation  of  the  power  of 
bequest.  The  effect  intended  was  to  be  "  the  appropriating  to 
the  use  of  the  public  all  vacant  successions,  property  of  every 
denomination  included,  on  the  failure  of  near  relations, 
will  or  no  will,  subject  only  to  the  power  of  bequest,  as  here- 
inafter limited." 

By  near  relations,  he  means  "  such  relations  as  stand  within 
the  degrees  termed  prohibited  with  reference  to  mar- 
riage." 

Further,  in  the  case  of  "  such  relations  within  the  pale  as 
are  not  only  childless,  but  without  prospect  of  children,"  he 
proposes,  that,  instead  of  taking  their  share  in  money,  they 
should  take  only  the  interest  of  it  for  life. 

"  As  to  the  latitude  to  be  left  to  the  power  of  bequest,"  he 
writes,  "  I  should  propose  it  to  be  continued  in  respect  to  the 
half  of  whatever  property  would  be  at  present  subject  to 
that  power." 

Bentham  argues  that  in  the  distribution  of  property  there 
is  no  sense  of  hardship  but  in  proportion  to  disappointment  : 
expectation  thwarted.  "Hardship,"  he  says,  "depends  upon 
disappointment  ;  disappointment  upon  expectation  ;  expecta- 
tion upon  the  dispensations,  meaning  the  known  dispensations, 
of  the  law." 


478  POLITICAL  ECONOMY. 

If,  therefore,  the  law  were  so  framed,  distant  relations* 
would  not  expect  to  succeed  ;  would  consequently  not  be  dis- 
appointed ;  and  would  consequently  suffer  no  hardship. 

574.  (3.)  Fines  and  forfeitures  for  Criminality  and  Delin- 
quency. Since  government  exists  largely  for  the  protection 
of  life,  property  and  labor,  the  cost  of  maintaining  govern- 
ment and  administering  justice  might  properly  be  drawn,  if 
it  were  found  possible,  from  the  delinquent  and  criminal  class. 

In  feudal  times,  fines  and  forfeitures  constituted  a  very 
important  source  of  revenue  to  the  crown. 

(a)  The  relation  of  the  tenant  to  the  lord  was  a  personal 
one,  and  any  failure  in  personal  loyalty,  though  it  did  not  be- 
come a  crime  against  society,  was  punished  by  heavy  fines  or 
by  total  forfeiture. 

(b)  The  crimes  of  those  days  were  largely  political,  and 
political  offenders  are  likely  to  be  men  of  wealth  and  position. 
The  Wars  of  the  Roses  were  so  fruitful  of  forfeitures  that  a 
large   proportion  of  the  land  became  the  property  of  the 
crown. 

In  the  present  age  political  crimes  have  become  compara- 
tively infrequent,  and  the  criminal  class  are  now  mainly 
drawn  from  the  poor,  who  are  not  proper,  perhaps  not  possible, 
subjects  for  pecuniary  exaction. 

Hence  this  branch  of  public  revenue  has  shrunk  into  com- 
parative insignificance.  Fines  and  forfeitures  pay  a  part  of 
the  expense  of  strictly  judicial  establishments,  especially  of 
the  lower  or  police  courts  ;  but  they  add  little  to  the  general 
receipts  of  the  state. 

(4.)  Tributes  from  colonies,  dependencies  and  conquered 
nations,  including  war  fines,  requisitions  and  indemnities. 

The  subject  is  a  fascinating  one  ;  f  but  I  must  resist  the 
temptation  to  enlarge  upon  it. 

*  The  principle  of  Bentham's  proposal  is  sanctioned  by  the  legacy  and 
succession  duties  of  England,  which  exact  ten  per  cent,  from  strangers, 
and  only  one  per  cent,  from  children. 

f  It  would  be  specially  interesting  to  compare  the  system  of  exaction 
practiced  by  the  Greeks,  Carthaginians  and  Romans,  in  ancient  times, 
and  by  the  Dutch  and  Portuguese,  in  modern  times, with  the  English  sys- 


THE  REVENUE   OF   THE   STATE.  479 

575.     (5.)  The  sale  of  offices,  honors  and  titles. 

This  source  of  revenue  makes  a  very  prominent  figure  in 
the  history  of  finance  ;  but  has,  at  present,  mainly  a  curious 
interest. 

The  sale  of  offices,  titles,  etc.,  by  the  state,  may  fall  into 
several  different  categories. 

(a)  The  sale  of  offices    of    dignity  and  honor,  as  in   the 
case  of  the  patents  of  nobility,  granted  by  James  L*  of  Eng- 
land, the  effect  of  which  merely  is  to  lower  the  real  honor  and 
dignity  of  such  offices,  perhaps  with  only  a  political  and  social 
retribution. 

(b)  The  sale  of  offices,  as  under  many  of  the  Popes,  which 
<3arry  salaries  in  the  nature  of  annuities  terminable  by  death, 
the  price  paid  representing,  more  or  less  exactly  from  the 
.actuarial  point  of  view,  the  capitalized  value  of  the  annuity. 

(c)  The  sale  of  offices,  as  once  practiced  largely  in  France, 
which  carry   exemptions   from    political  burdens   and   from 
taxes.     This    amounts  simply  to  a   sale  of  the  rights  of  the 
state  in  respect  to  taxation,  and  is,  in  effect,  an  anticipation  of 
revenue.     A  government  which  was  in   such   straits    as   to 
resort  to  practices  like  these  would  be  likely  to  make  a  very 
bad  bargain  for  itself  ;  and  so  in  France  it  proved. 

"  As  the  finances  became  more  embarrassed,"  says  M.  de 


tern  of  seeking  the  interest  of  the  mother  country,  or  the  conquering 
country,  in  the  right  to  impose  navigation  laws  and  commercial  restric- 
tions, and  in  the  benefits  of  patronage  in  officering  the  public  service  of 
colonies  and  dependencies. 

*  The  sum  paid  to  constitute  a  Baron  was  £10,000  ;  a  viscount,  £15,000, 
an  Earl,  £20,000.— Taylor,  Hist,  of  Taxation  in  England. 

"  The  price  of  the  dignity  of  a  Baronet,"  says  Taylor,  "  was  equivalent 
to  £1095,  ninety-three  of  whom  were  created." 

These  are  instances  of  the  sale  of  offices  to  willing  purchasers.  James' 
son,  Charles  I.,  undertook  the  sale  of  his  offices  to  his  subjects,  witty 
nitty.  He  revived  the  feudal  practice  of  "  Knight's  Fee,"  and  compelled 
persons  holding  land  of  a  certain  yearly  value  to  come  up  and  be 
knighted,  or  submit  to  a  fine  for  contumacy.  Brodie  says,  "  Charles  did 
not  restrict  it  to  men  of  landed  property.but  included  lessees,  merchants, 
:and  others." — Hist.  Br.  Empire. 


480  POLITICAL  ECONOMY. 

Tocqueville,  "new  offices  were  created,  with  exemptions 
from  taxation  or  privileges  by  way  of  salary  ;  and  as  they 
were  created  to  supply  the  wants  of  the  treasury  and  not  the 
requirements  of  the  public  service,  an  immense  number  of  them 
were  useless  or  positively  mischievous. 

"  As  early  as  1664,  when  Colbert  instituted  an  inquiry  into 
the  subject,  it  was  discovered  that  the  capital  invested  in  this 
miserable  business  nearly  amounted  to  500,000,000  livres.  It 
is  said  that  Richelieu  abolished  100,000  offices.  They  rose 
anew,  under  fresh  names.  For  a  trifle  of  money,  the  state 
bartered  away  the  right  of  directing  and  controlling  its  own 
servants.  The  net  result  of  this  system  was  a  government 
machine,  so  vast,  so  complicated,  so  cumbrous,  and  so  ineffi- 
cient that  it  was  actually  found  necessary  to  let  it  stand  idle,, 
while  a  new  instrument,  constructed,  with  more  simplicity  and 
better  adapted  for  use,  performed  the  work  which  these  count- 
less functionaries  were  supposed  to  do." 

It  was  Louis  XII.  who  systematized  the  sale  of  offices,  and 
Henry  IV.  who  first  sold  hereditary  ones. 

(d)  The  sale  of  offices,  as  notably  under  the  Roman  Em- 
pire, which  carry  rights,  privileges  and  exclusive  opportuni- 
ties by  which  the  purchaser  may  reimburse  himself  for  his 
outlay,  either  through  a  monopoly  or  through  the  collection 
and  disbursement  of  the  public  revenue. 

576.    (6.)  Domains  (L'Etat  Capitaliste.) 

Even  under  the  modern  European  principle  of  the  private 
ownership  of  land,  the  state  is,  in  all  countries,  the  possessor 
of  larger  or  smaller  domains  from  which  a  revenue  may  be 
derived. 

It  is  the  habit  of  writers  on  finance  to  speak,  and  perhaps 
justly,  in  the  most  disparaging  tone  of  the  administration  of 
public  estates,  for  productive  uses.*  Adam  Smith  expresses 


*  M.  Leroy  Beaulieu  dwells  upon  the  distinction  between  the  property 
of  the  State,  which  is  left  to  the  enjoyment  of  the  community,  or  which 
is  devoted  to  government  uses,  and  that  which  is  sought  to  be  adminis- 
tered productively.  The  former  he  terms  domaine  public ;  the  latter 
domaine  privb  de  V  Etat. 


THE  REVENUE   OF   THE   STATE.  481 

himself  in  the  strongest  terms.  "  The  servants  of  the  most 
negligent  master  are  better  superintended  than  the  ser- 
vants of  the  most  vigilant  sovereign."  Referring  to  his  own 
country,  he  says  :  "  The  crown-lands  of  Great  Britain  *  do 
not,  at  present,  afford  the  fourth  part  of  the  rent  which  could 
probably  be  drawn  from  them,  if  they  were  the  property  of 
private  persons.  If  the  crown-lands  were  more  extensive,  it  is 
probable  they  would  be  still  worse  managed."  And,  not  to 
disparage  English  administration  too  greatly,  he  adds  :  "  In 
the  present  state  of  the  greater  part  of  the  civilized  monar- 
chies of  Europe,  the  rent  of  all  lands  in  the  country,  managed 
as  they  would  probably  be  if  they  all  belonged  to  one  pro- 
prietor, would  scarce  amount,  perhaps,  to  the  ordinary  revenue 
which  they  levy  upon  the  people,  even  in  peaceful  times." 

However  much  this  statement  might  require  to  be  modified 
with  respect  to  the  management  of  government  property  in  a 
country  like  Germany,  with  its  admirable  civil  service  and 
its  systematic  administration  of  public  trusts,  no  one  would 
think  of  questioning  the  full  literal  truth  of  Adam  Smith's 
declaration  if  applied  to  our  own  country,  with  its  civil  ser- 
vice based  upon  the  principles  of  rotation  in  office  and  appoint- 
ment as  the  reward  of  partisan  activity. 

Of  the  present  European  States,  Russia,  Prussia,  Bavaria, 
Sweden,  and  Hanover,  derive  considerable  revenue  from  pub- 

*  Did  our  space  allow,  it  would  be  interesting  to  refer  to  the  aliena- 
tions and  resumptions  and  renewed  alienations  of  the  Crown-lands, 
through  the  reigns  of  the  Tudors  and  the  Stuarts.  Strangely  enough,  it  was 
that  model  financier,  William  III.,  who  effected  the  greatest  havoc  among 
the  royal  domains.  One  can  scarcely  read  of  the  wholesale  squandering  of 
the  property  of  the  Crown  by  this  monarch,  without  the  suspicion  that  he 
clearly  saw  the  coming  on  of  the  modern  system  of  finance,  when  the 
necessities  of  the  state  should  be  met,  no  longer  by  rents  and  fines  and  for- 
feitures and  escheats  and  purveyance,  but  by  systematic  taxation  ;  and 
that,  in  something  like  contempt  for  the  feudal  sources  of  revenue,  he 
purposely  chose  to  dissipate  the  patrimony  on  which  his  predecessors  had 
relied.  "  At  the  end  of  William's  reign,"  says  Sir  E.  May,  "  Parliament, 
having  obtained  accounts  of  the  state  of  the  land  revenues,  found  that  they 
had  been  reduced  by  grants,  alienations,  incumbrances,  reversions,  and 
pensions,  until  they  scarcely  exceeded  the  rent-roll  of  a  squire." 


482  POLITICAL  ECONOMY. 

lie  domains,  the  first  named  being  so  pre-eminent  in  this  res- 
pect that  M.  Cherbuliez  *  mentions  it  as  almost  the  only 
state  which  draws  a  notable  proportion  of  its  revenue  from 
such  a  source. 

577.  (7)  State  Enterprise  (L'Etat  Entrepreneur).— What- 
ever the  disabilities  of  the  state  in  acquiring  a  revenue  from 
the  rental  or  sale  of  property,  whether  that  consist  of  agri- 
cultural lands,  or  mines,  or  forests,  or  fisheries,  or  phosphate 
deposits,  those  disabilities  are  greatly  increased  when  the  state 
undertakes  the  management  of  commercial  or  manufacturing 
business,  f  The  state  as  capitalist  is  at  no  small  disadvantage  ; 
as  entrepreneur,  that  disadvantage  is  vastly  aggravated. 

Yet  the  rule  of  failure,  on  this  side  of  governmental  agency 
is  not  unbroken.  Dr.  Smith  mentions  the  republic  of  Ham- 
burg as  deriving  a  considerable  revenue  from  a  public  wine 
cellar  and  from  an  apothecary's  shop.  The  profits  of  bank- 
ing \  have  been  realized  in  a  notable  degree  by  several  cities, 
among  them  Hamburg,  Venice  and  Amsterdam.  The  post- 
office  can  be  made,  and  has  been  made,  "  to  pay,"  and  that 
handsomely.  If  the  post-office  in  the  United  States  is  not  a 
source  of  revenue,  it  is  because  our  people  have  chosen  to 
make  it  an  agency  for  promoting  the  settlement  of  the  coun- 
try. The  business  of  distilling  in  Russia,  of  sugar  refining  in 
Egypt,  and  of  opium  manufacture  in  British  India,  have  been 
made  the  subject  of  no  inconsiderable  profit  to  government, 

*  Science  Economique.  Worth  mentioning  in  this  connection  are  the 
sugar  plantations,  private  property  of  the  Khedive  of  Egypt,  the  guano 
deposits  of  Peru  and  Chili,  and  the  mahogany  forests  of  Honduras,  on 
the  credit  of  which  vast  loans  have  been  obtained,  within  recent  years, 
in  the  London  market. 

f  Adam  Smith  remarks  that  no  two  characters  are  more  inconsistent 
than  those  of  trader  and  sovereign.  "If  the  trading  spirit  of  the  English 
East  India  Company  rendered  them  very  bad  sovereigns,  the  spirit  of 
sovereignty  seems  to  have  rendered  them  equally  bad  traders." 

\  The  Prussian  Bank  in  1874  declared  dividends  of  12  3-4  per  cent. 
One-half  the  net  gains  of  the  bank  go  to  the  state.  The  United  States  was 
a  partner  to  the  extent  of  one-fifth  in  the  bank  of  1791-1811,  and  again  iu 
that  of  1816-1836. 


QUASI   TAXES.  483 

The  supply  of  towns  in  the  matter  of  water,  and,  in  a  smaller 
number  of  instances,  of  gas,  has  been  attempted,  not  unsuc- 
cessfully, by  municipal  governments. 

The  instance  which  goes  furthest  to  contradict  the  generally 
received  opinion  of  the  hopeless  incapacity  of  the  state  to 
conduct  industrial  enterprises,  is  afforded  by  the  railways  of 
Germany. 

578.  III.  Quasi  Taxes.— The  following  may  be  named  as 
sources  of  revenue  under  this  head  : 

(1.)  Monopolies  conferred  upon  individuals  or  corporations, 
in  consideration  of  a  capital  sum  paid  down,  or  of  a  share  in 
the  resulting  profits. 

Monopolies  have  played  a  conspicuous  part  in  the  history  of 
public  revenues;  and,  in  spite  of  the  spirit  of  the  age  which 
is,  in  general,  strongly  opposed  to  exclusive  privileges  of  man- 
ufacture and  sale,  they  still  form  a  prominent  feature  in  the 
budget  of  many  countries  of  Europe. 

Monopolies  may  be  commercial,  industrial  or  financial. 
The  distinction  between  the  monopolies  of  the  past  and  those 
of  the  present  day  is  marked.  Formerly  monopolies  were 
granted,  for  the  profit  of  the  government,  to  persons  and 
corporations  to  carry  on  a  vast  variety  of  operations,*  great 
and  small  alike,  most  of  which  were  susceptible  of  private 
management. 


*  The  story  of  the  rapid  extension  of  monopolies  in  England  under 
Elizabeth,  of  the  indignation  aroused  thereby  throughout  the  realm,  and 
of  the  submission  of  the  haughty  Tudor  to  the  rising  storm,  is  familiar 
to  every  school-boy.  Hume  remarked  that,  had  Elizabeth's  system  of 
monopolies  been  continued,  the  England  of  his  day  would  have  contained 
as  little  industry  as  Morocco  or  the  coast  of  Barbary. 

Charles  I.  played  the  same  game  as  Elizabeth,  and  aroused  an  equal 
popular  indignation,  until  even  the  subservient  judges  kicked  at  the 
restraints  everywhere  imposed  upon  trade. 

Says  Brodie,  after  referring  to  the  soap  monopoly:  "Almost  every 
article  of  ordinary  consumption,  whether  of  manufacture  or  not,  was 
exposed  to  a  similar  abuse  ;  salt,  starch,  coals,  iron,  wine,  pens,  cards  and 
dice,  beavers,  felts,  bone-lace,  etc.,  meat  dressed  in  taverns,  tobacco, 
wine  casks,  brewing  and  distilling,  lamprons,  weighing  of  hay  and 
straw  in  London  and  Westminster,  gauging  of  red  herrings,  butter-casks. 


484  POLITICAL  ECONOMY. 

Such  were  the  monopolies  of  the  17th  and  18th  centuries. 
To-day,  under  the  light  of  political  economy,  all  prudent  gov- 
ernments restrict  the  principle  of  monopoly  to  a  very  few 
highly  important  interests,  and,  by  preference,  to  those  which 
in  their  nature  tend  toward  monopoly.  Thus  Bentham,  that 
arch  enemy  of  monopolies,  proposed  the  collection  of  large 
revenues  from  bankers,  who  were  to  be  compensated  by  a 
monopoly  within  their  several  districts,  on  the  ground  that 
banking  was  a  business  tending  to  monopoly. 

In  the  same  way,  taxes  on  railway  goods  and  passenger 
traffic  in  England  and  France  have  been  defended,  even  by 
free-traders,  on  the  ground  that  railway  transportation  is  nec- 
essarily very  much  of  a  monopoly  ;  that  full  and  effective 
competition  can  rarely  be  introduced  and  never  long  main- 
tained ;  and  that  the  state  may,  therefore,  accepting  the  fact 
of  a  substantial  monopoly,  properly  derive  a  profit  therefrom. 

But  there  are  also  certain  special  interests  of  great  commer- 
cial importance,  in  every  way  fitted  for  private  management, 
which,  on  account  of  their  high  capability  for  yielding  reve- 
nue, some  enlightened  nations  still  constitute  exceptions  to  the 
principle  of  open  public  competition. 

Among  the  subjects  thus  specially  excepted  from  the  prin- 
ciple of  competition,  are  opium,  salt,  tobacco  and  matches. 

579. — (2.)  Lotteries.  This  needs  only  to  be  mentioned  as 
a  source  of  revenue  largely  made  use  of,  in  the  past,  and  still 
forming  an  important  feature  in  the  budgets  of  many  civilized 
countries.  Of  the  moral  and  social  objections*  to  this  system 
of  raising  money,  we  are  not  called  to  speak  here.  Econom- 
ically speaking,  there  can  be  no  doubt  that,  while  lotteries 
afford  a  most  effective  means  of  securing  a  present  revenue, 

kelp  and  seaweed,  linen  cloth,  rags,  hops,  buttons,  hats,  gutstring,  spec- 
tacles, combs,  tobacco,  pipes,  etc. ,  saltpeter,  gunpowder,  in  short,  articles 
down  to  the  sole  gathering  of  rags,  were  all  under  the  fetters  of  monopo- 
lies, and  consequently  deeply  taxed." 

*  It  is  to  be  noted  that  the  laws  against  private  lotteries  which,  doubt- 
less, did  much  to  educate  that  public  sentiment  which  now  makes  even 
public  lotteries  impossible  in  many  countries,  originated  in  the  desire  to 
secure  to  the  state  the  profits  of  this  source  of  gain. 


REVENUE   OF   THE   STATE.  485 

appealing,  as  they  do,  to  one  of  the  strongest  passions  of 
human  nature,  they  yet,  in  their  ultimate  effect,  weaken  the 
state  by  discouraging  patient  industry,  and  thus  impair  the 
revenue  capabilities  of  any  people  among  whom  they  come  to 
be  extensively  employed.  In  two  of  the  states  of  the  Ameri- 
can union,  lotteries  are  still  conducted  under  government  pat- 
ronage. Every  one  is  familiar  with  them  as  agencies  for  col- 
lecting money  for  charitable  and  religious  associations. 

580. — (.3.)  Purveyance. — The  right  of  buying  provisions 
and  other  necessaries  for  the  use  of  the  royal  household,  at  an 
appraised  valuation,  in  preference  to  all  other  purchasers  and 
even  without  the  consent  of  the  owner,  might  have  been 
included  among  the  "  lucrative  prerogatives  "  mentioned  under 
a  former  head,  or  may  indifferently  be  regarded  as  a  quasi 
tax.  Once  extensively  practiced,  purveyance  is  now  greatly 
restrained  and  confined,  and  in  almost  all  highly  civilized 
countries  is  wholly  discontinued — except  during  actual  war, 
or  in  the  case  of  a  royal  progress. 

581. — (4.)  Fees. — A  fourth  mode  of  raising  revenue,  which 
partakes  largely  of  the  nature  of  a  tax,  without  bearing  its 
form,  is  through  the  exaction  of  fees  for  stated  or  occasional 
services  performed  by  the  agents  of  the  State. 

So  far  as  fees  are,  in  the  phrase  of  Gamier,  not  fiscal,  that 
is,  so  far  as  they  constitute  merely  a  return  for  the  expense 
to  which  the  individual  receiving  the  benefit  has  put  the  state,, 
on  his  own  behalf,  they  do  not  come  under  the  present  title. 
We  are  only  concerned  here  with  fees  exacted  by  the  state  as 
a  means  of  revenue,  in  excess  of  the  expense  to  which  the 
state  is  put  by  the  performance  of  the  service,  and  where, 
perhaps,  the  so-called  service  is  itself  interposed  only  as  an 
occasion  for  the  imposition  of  a  tax,  as  in  the  case  of  many 
custom-house  services. 

Into  the  same  category  would  properly  fall  all  the  fees 
exacted  from  individuals  where  the  main  benefit  is  received 
by  the  community,  even  though  the  aggregate  of  such  receipts 
should  not  equal  the  expense  to  the  state  of  maintaining  some 
necessary  service.  Judicial  fees  are  often  of  this  nature,  the 
cost  of  obtaining  the  adjudication  of  a  great  principle  having; 


486  POLITICAL  ECONOMY. 

been  formerly  thrown  upon  single  individuals,  who  were  fre- 
quently less  benefited  than  thousands  of  others  by  the  deci- 
sions reached.  This  system  was  fiercely  attacked  by  Bentham. 

"  Who  goeth  to  warfare  at  any  time  at  his  own  charges  ? 
saith  St.  Paul.  It  is  the  poor  litigant  who  makes  war  upon 
injustice." 

It  is  also  fairly  a  question  whether  the  maintenance  of  the 
ordinary  roads  of  a  country  is  not,  in  such  a  sense  and  in  so 
far,  a  general  charge,  that  fees,  under  the  name  of  tolls,  con- 
stitute a  quasi  tax,  instead  of  being,  according  to  the  assump- 
tion on  which  they  are  collected,  the  price  paid  by  the 
individual  for  a  service  rendered  to  himself  directly  and 
exclusively. 

Of  other  forms  of  quasi  taxes  (5)  seigniorage  on  the  coin, 
and  (6)  the  issue  of  paper  money,  enough  has  been  said  in 
Part  III. 

582.  IV.  Taxation  in  its  Various  Forms.— Taxation  may 
be  considered  (a)  according  to  its  ultimate  Bases,  which  may 
be  Rent-bearing  land,  Wealth,  Revenue,  Faculty,  or  Expendi- 
ture, one  or  all  of  these. 

The  first  we  have  already  discussed  under  the  title  "  The 
Nationalization  of  the  Land."  A  tax  on  rent,  we  have  seen,  is 
not  a  general  tax.  It  does  not  fall  upon  those  members  of  the 
community  who  do  not  own  land.  It  does  not  affect  the  price 
of  produce.  It  amounts  merely  to  the  assumption,  or  usurpa- 
tion, as  one  is  disposed  to  regard  it,  by  the  state,  of  the 
surplus  of  produce  above  the  cost  of  cultivating  the  no-rent 
lands. 

A  tax  upon  the  no-rent  lands,  either  by  themselves,  or  in 
common  with  other  lands,  is  a  tax  on  produce. 

583.  Again,  taxation  may  be  considered  (b)  with  reference 
to  the  equities  of  contribution.     In  this  connection  we  might 
discuss  : 

(1.)  The  Physiocratic  theory  of  Taxation.  The  French 
Physiocrats  (par.  48)  holding,  as  they  did,  that  land,  alone  of 
all  agencies  of  production,  yields  a  return  above  the  cost  of 
production,  proposed,  thereupon,  to  make  land  yield  all  the 


REVENUE   OF   THE   STATE.  487 

revenue  of  the  state,  as  a  measure  both  of  justice  and  of 
political  expediency.* 

This  tax  is  to  be  distinguished  from  the  assumption  by  the 
state  of  the  Unearned  Increment  of  Land,  as  proposed  by  Mr. 
Mill  and  his  associates.  The  latter,  as  we  have  seen,  would 
not  raise  the  price  of  produce.  The  former  would  do  so,  and 
was  intended  to  do  so. 

But,  with  the  complete  refutation  of  the  physiocratic  theory- 
of  production  fell  the  physiocratic  scheme  of  taxation. 

(2.)  The  Social  Dividend  Theory  of  Taxation,  which  is,  in 
effect,  that  the  members  of  the  community  should  contribute 
to  the  public  support  in  proportion  to  the  benefits  they  derive 
from  the  protection  of  the  state,  or  according  as  the  services 
they  receive  cost  the  state  more  or  cost  it  less. 

(3.)  A  group  of  theories  respecting  the  equities  of  taxation, 
differing  not  greatly  among  themselves,  which  give  rise, 
respectively,  to  what  we  may  call  the-equality-of-sacrifice 
rule  ;  the  rule  of  contribution-according-to-ability,  and  the 
leave-them-as-you-find-them  rule. 

It  is  in  discussing  the  theories  of  this  group  that  the  ques- 
tion of  progressive  taxation  arises.  That  question  is  common 
to  all  the  theories  of  this  group. 

(4.)  We  have  the  view  taken  by  Mr.  McCulloch,f  in 
despair  of  reaching  the  equities  of  the  case,  which  may  be 
called  the  purely  economic  theory  of  taxation.  The  discus- 
sion of  this  theory  brings  up  the  whole  question  of  the  diffu- 
sion or  "  repercussion  "  of  taxes. 

*  "Us  etablissent  d'  abord  que  la  terre  seule  donne  un  revenu  net,  c'est- 
a-dire,  un  revenu  qui  excede  les  depenses  necessaires  pour  1'entretien  des 
cultures  et  des  cultivateurs  ;  ils  etablissent  ensuite  que  ce  revenu  net  est 
la  source  qui  alimente  tous  les  autres  revenus  ;  ils  en  concluent  qu'il  est 
inutile  de  poursuivre  les  revenus  mobiliers  a  travers  les  mille  canaux  oft 
ils  circulent :  qu'il  est  plus  commode  et  plus  juste  de  les  atteindre  a  leur 
source,  et  ils  aboutissent  &  la  the"orie  de  I'irip6t  unique  sur  le  revenu 
fonder." — Clamageran:  Hist,  de  I'lmp6t  en  France. 

f  "  The  distinguishing  feature  of  the  best  tax  is,  not  that  it  is  most 
nearly  proportioned  to  the  means  of  individuals,  but  that  it  is  easily 
assessed  and  collected,  and  is,  at  the  same  time,  most  conducive  to  the 
public  interests." 


.488  POLITICAL  ECONOMY. 

584.  (c.)     The  foregoing  discussions  are  introductory  to 
the  consideration  of  any  specific  tax  or  group  of  taxes,  or 
existing  tax  system,  respecting  which  we  may  inquire  how 
far  it  answers  the  requirements  of  equitable  contribution,  or, 
on  the  other  hand,  if  we  abandon  the  rule  of  equity  altogether 
— as  did  Mr.  McCulloch — how  far  it  secures  to  the  state  the 
needed  revenue,  with  a  minimum  of  irritation  to  the  public 
mind,  with  a  minimum  of  expense  and  loss  in  collection,  and 
with  a  minimum  disturbance  to  trade  and  industry. 

XVI. 

THE  PRINCIPLES    OF  TAXATION. 

585.  Inadequacy  of  the  Literature  of  Taxation.— Accord- 
ing to   an  eminent  German  financier,  Hoffmann,  it  would  be 
difficult  to  find,  in  the  whole  realm  of  political  economy,  a  sub- 
ject more  generally  misconceived,  more  disfigured  by  false 
views,  more  degraded  by   a  partial    study,    than    Taxation. 
"  If,"  adds  M.  de  Parieu,  author  of  the  ablest  French  work  on 
the  subject,  "  this  proposition    appeared  true  in    a  country 
where  the  problem  of  instruction  in  administration  has  for  a 
long  time  been  studied,  it  is  probably  still  more  so  in  France, 
where  the  practice  is  even  further  separated  from  the  science 
of  administration." 

586.  The  body  of  English  literature  in  finance  is  extremely 
unsatisfactory.*  Adam  Smith,  indeed,  gave  to  taxation  about 
one-fourth  of  his  Wealth  of  Nations;  but  his  treatment  shows 
little  grasp  of  the  subject,  at  any  point;  while  his  ignorance  of 
the  law  of  rent  goes  far  to  vitiate  his  general  views.    Ricardo 
dealt  with  taxation,  at  great  length  ;  and  as  a  study  of  the 

*  I  have  been  severely  blamed  for  using  language  even  stronger  than 
this,  in  former  editions  of  this  work.  I  dare  say  my  statements  were  too 
sweeping.  Mr.  Newmarch's  papers  on  public  debts  and  Mr.  Gladstone's 
Budget  speeches  are  never  to  be  mentioned  without  honor.  Mr.  Robert 
Giffen,  Prof.  Cliffe  Leslie,  Mr.  Inglis  Palgrave,  and  Prof.  Thorold 
Rogers  have  made  important  contributions  to  many  questions  touching 
local  or  imperial  taxation. 


LITERATURE   OF    TAXATION.  489 

propagation  of  an  economic  impulse  from  object  to  object, 
and  from  class  to  class,  his  discussion  is  masterly.  But 
Ricardo's  underlying  assumption  of  perfect  competition 
has  necessarily  resulted  in  conclusions  which  are  widely 
inconsistent  with  the  facts  of  industrial  society.  J.  R. 
McCulloch  discussed  taxation  and  the  funding  system  in 
a  distinct  treatise,  which  is  not  without  value.  Later  English 
contributions  to  finance  have,  with  few  exceptions,  either 
T>een  trivial. in  character  or  have  been  confined  to  single 
phases  of  the  general  subject.  No  great,  comprehensive 
English  work  on  Taxation  exists. 

587.  Perhaps  we  shall  get  as  good  an  idea  of  the  inconse- 
quence of  the  English  literature  in  this  department,  as  can  be 
obtained    in  any  other  way,  by  referring  to  Adam  Smith's 
maxims     respecting    taxation.     Dr.     Smith    proposed     four 
maxims,*  or   principles,   "  which,"  says   Mr.    Mill,   "  having 
been  generally  concurred  in  by  subsequent  writers,  may  be 
said  to  have  become  classical."  A  vast  deal  of  importance  has 
been  assigned  by  English  economists  to  these  maxims.     They 
have  been  quoted  over  and  over  again,  as   if  they  contained 
truths  of  great  moment;   yet  if  one  examines  them,  he  finds 
them,  at  the  best,  trivial ;  while  the  first  and  most  famous  of  these 
can  not  be  subjected  to  the  slightest  test  without  going  all 
to  pieces. 

588.  The  Social  Dividend  Theory  of  Taxation.—"  The 
subjects  of  every  state,"  says  Dr.  Smith,  "  ought  to  contribute 

*  "  I.  The  subjects  of  every  state  ought  to  contribute  towards  the  support 
of  the  government  as  nearly  as  possible  in  proportion  to  their  respective 
abilities ;  that  is,  in  proportion  to  the  revenue  which  they  respectively 
enjoy  under  the  protection  of  the  state. 

"  II.  The  tax  which  each  individual  is  bound  to  pay  ought  to  be  certain 
and  not  arbitrary.  The  time  of  payment,  the  manner  of  payment,  the 
quantity  to  be  paid,  ought  all  to  be  clear  and  plain  to  the  contributor, 
and  to  every  other  person. 

"  III.  Every  tax  ought  to  be  levied  at  the  time,  or  in  the  manner,  in 
which  it  is  most  likely  to  be  convenient  for  the  contributor  to  pay  it. 

"  IV.  Every  tax  ought  to  be  so  contrived  as  both  to  take  out  and  to  keep 
out  of  the  pockets  of  the  people  as  little  as  possible  over  and  above  what 
it  brings  into  the  public  treasury  of  the  state." 


49°  POLITICAL  ECONOMY. 

towards  the  support  of  the  government  as  nearly  as  possible 
in  proportion  to  their  respective  abilities;  that  is,  in  proportion 
to  the  revenue  which  they  respectively  enjoy  under  the  pro- 
tection of  the  state." 

This  maxim,  though  it  sounds  fairly,  will  not  bear  examin- 
ation. What  mean  those  last  words,  "  under  the  protection 
of  the  state  "  ?  They  are  either  irrelevant,  or  else  they  mean 
that  the  protection  enjoyed  affords  the  measure  of  the  duty 
to  contribute.  But  the  doctrine  that  the  members  of  the 
community  ought  to  contribute  in  proportion  to  the  benefits 
they  derive  from  the  protection  of  the  state,  or  according  as 
the  services  performed  in  their  behalf  cost  less  or  cost  more  to 
the  state,  involves  the  grossest  practical  absurdities.  Those 
who  derive  the  greatest  benefit  from  the  protection  of  the 
state  are  the  poor  and  the  weak — women  and  children  and  the 
aged  ;  the  infirm,  the  ignorant,  the  indigent. 

Even  as  among  the  well-to-do  and  wealthy  classes  of  the 
community,  does  the  protection  enjoyed  furnish  a  measure  of 
the  duty  to  contribute  ?  If  so,  the  richer  the  subject  or  citi- 
zen is,  the  less,  proportionally,  should  he  pay.  A  man  who 
buys  protection  in  large  quantities  should  get  it  at  wholesale 
prices,  like  the  man  who  buys  flour  and  meat  by  the  car-load. 
Moreover,  it  costs  the  state  less  to  collect  a  given  amount 
from  one  taxpayer  than  from  many. 

Returning  to  the  maxim  of  Dr.  Smith,  I  ask,  does  it  put  for- 
ward ability  to  contribute,  or  protection  enjoyed,  as  afford- 
ing the  true  basis  of  taxation  ?  Which  ?  If  both,  on  what 
principles  and  by  what  means  are  the  two  to  be  combined  in 
practice  ? 

589.  Taxation  According  to  Ability.— But  if  we  take  the 
last  six  words  as  merely  a  half -conscious  recognition  of  the 
social-dividend  theory  of  taxation,  and  throw  them  aside,  we 
shall  still  find  this  much-quoted  maxim  far  from  satisfactory  : 
"  The  subjects  of  every  state  ought  to  contribute  towards  the 
support  of  the  government  as  nearly  as  possible  in  proportion 
to  their  respective  abilities  ;  that  is,  in  proportion  to  the  reve- 
nue which  they  respectively  enjoy." 

But  is  the  ability  of  two  persons  to  contribute  necessarily  in 


THE   PRINCIPLES  OF   TAXATION.  491 

proportion  to  their  respective  revenues  ?  Take  the  case  of 
the  head  of  a  family  having  an  income  of  $500  a  year,  of  which 
$400  is  absolutely  essential  to  the  maintenance  of  himself  and 
wife  and  children  in  health  and  strength  to  labor.  Is  the 
ability  of  such  a  person,  who  has  only  $100  which  could  possi- 
bly be  taken  for  public  uses,  one  half  as  great  as  that  of  an- 
other head  of  a  family  similarly  situated  in  all  respects  except 
that  his  income  amounts  to  $1000,  and  who  has  therefore 
$600  which  could  conceivably  be  brought  under  contribution  ? 
Manifestly  not. 

We  shall,  then,  still  further  improve  Dr.  Smith's  maxim  if 
we  cut  away  all  after  the  first  clause  :  "  The  subjects  of  every 
state  ought  to  contribute  towards  the  support  of  the  govern- 
ment as  nearly  as  possible  in  proportion  to  their  respective 
abilities."  The  maxim  as  it  stands  is  unexceptionable,  but 
does  not  shed  much  light  on  the  difficult  question  of  assess- 
ment. 

590.  The  Leave-them-as-you-find-them  Rule  of  Taxa- 
tion.— The  best  statement  I  have  met  of  the  principle  of  con- 
tribution based  on  ability  is  contained  in  an  article  in  the 
Edinburgh  Review  of  1833  :  "  No  tax  is  a  just  tax  unless  it 
leaves  individuals  in  the  same  relative  condition  in  which  it 
finds  them."  What  does  the  precept,  which  we  may  call  the 
leave-them-as-you-find-them  rule  of  taxation,  demand  ?  In 
seeking  an  answer  to  this  question,  let  us  inquire,  historically, 
what  bases  have  been  taken  for  assessment.  Leaving  out 
Rent-Bearing  Land,  whose  fiscal  relations  have  been  suffi- 
ciently dwelt  upon,  we  note  four  : 

1.  Contribution  has  been  exacted  on  the  basis  of  Realized 
Wealth,  commonly  spoken  of  as  Capital. 

2.  On  the  basis  of  Annual  Income,  or  Revenue. 

3.  On  the  basis  of  Faculty,  or  native  and  acquired  power  of 
production. 

4.  On  the  basis  of  Expenditure,  or  the  individual  consump- 
tion of  wealth. 

These  are  the  four  historical  bases  of  taxation.  Let  us  see 
how  far  each  in  turn  answers  the  requirement  of  the  Edin- 
burgh Reviewer's  maxim  that  the  tax  ought  to  leave  the  mem- 


49 2  POLITICAL  ECONOMY. 

bers  of  the  community  in  the  same  relative  condition  in  which 
it  finds  them. 

And,  first,  of  Realized  Wealth.  Wealth  is  accumulated  by 
savings  out  of  revenue.  If,  then,  wealth  alone  is  to  be  taxed, 
it  is  saving,  not  production,  which  contributes  to  the  support 
of  the  state.  Economically  there  can  not  be  a  moment's  doubt 
that  for  government  thus  to  draw  its  revenue  from  only  that 
part  of  the  produced  wealth  of  the  community  which  is 
reserved  from  immediate  expenditure,  must  be  prejudicial. 
The  question  also  arises,  where  is  the  political  or  social  justice 
of  such  a  rule  of  contribution  ?  If  my  income  belongs  to  me, 
to  spend  for  my  own  comfort  and  gratification,  without  any 
deduction  for  the  uses  of  the  state,  why  should  I  lose  my  right 
to  any  part  of  it  because  I  save  it  f  To  tax  realized  wealth  is 
to  punish  men  for  not  consuming  their  earnings  as  they  re- 
ceive them.  Yet  it  is  eminently  for  the  public  interest  that 
men  should  save  of  their  means  to  increase  the  capital  of  the 
country. 

591.  Bevenue  as  the  Basis  of  Taxation.— Turning  to  Rev- 
enue, it  would  seem,  on  the  first  thought,  that  we  had  reached 
a  rule  of  equitable  contribution.  Yet  the  rule  of  contribution 
according  to  revenue  is  subject  to  grave  impeachment. 

Here  are  two  men  of  equal  natural  powers.  One  is  active, 
energetic,  industrious  ;  he  toils  early  and  late  and  realizes  a 
considerable  revenue,  on  a  portion  of  which  the  state  lays  its 
hand.  The  other  lets  his  natural  powers  run  to  waste  ;  trifles 
with  life,  lounges,  hunts,  fishes,  gambles,  and  is  content 
with  a  bare  and  mean  subsistence.  Was  his  duty  to  contribute 
to  the  support  of  the  state  different  in  kind  or  degree  from  that 
of  the  other  f  If  not,  how  has  his  idleness,  shiftlessness,  worth- 
lessness,  forfeited  the  state's  right  to  a  contribution  from  him  in 
proportion  to  his  abilities  ? 

We  must,  I  think,  conclude  that,  while  to  tax  wealth  instead 
of  revenue  is  to  put  a  premium  upon  self-indulgence  in  the 
expenditure  of  wealth  for  present  enjoyment,  to  tax  revenue 
instead  of  faculty  is  to  put  a  premium  upon  self-indulgence  in 
the  form  of  indolence,  the  waste  of  opportunities,  and  the 
abuse  of  natural  powers. 


THE  PRINCIPLES   OF   TAXATION.  493 

592.  Expenditure  as  the  Basis  of  Taxation.— Passing  for 
the  moment  by  our  third  title,  we  find  that  the  fourth  basis 
taken  for  taxation  has  been  Expenditure.  This  must  not  be 
confounded  with  taxes  on  consumption,  as  constituting  a  part 
of  a  tax  system  in  which  taxes  on  realized  wealth,  taxes  on 
revenue,  taxes  on  faculty,  one  or  all  of  these,  also  appear. 
Nor  do  we  speak  here  of  taxes  on  expenditure  imposed  in 
practical  despair  of  an  equitable  distribution  of  the  burdens  of 
government.  We  are  now  concerned  with  expenditure  only 
as  the  single  basis  of  taxation,  in  the  interest  of  political 
equity. 

"  It  is  generally  allowed,"  wrote  Sir  William  Petty,  two 
hundred  years  ago,  "  that  men  should  contribute  to  the  pub- 
lic charge  but  according  to  the  share  and  interest  they  have 
in  the  public  peace  ;  that  is,  according  to  their  estate  or  riches. 

"  Now,  there  are  two  sorts  of  riches,  one  actual  and  the 
other  potential.  A  man  is  actually  and  truly  rich  according 
to  what  he  eateth,  drinketh,  weareth,  or  in  any  other  way 
really  and  actually  enjoyeth.  Others  are  but  potentially  and 
imaginatively  rich,  who,  though  they  have  power  over  much, 
make  little  use  of  it,  these  being  rather  stewards  and  exchangers 
for  the  other  sort  than  owners  for  themselves. 

"  Concluding,  therefore,  that  every  man  ought  to  contribute 
according  to  what  he  taketh  to  himself  and  actually  enjoyeth, 
the  first  thing  to  be  done  is,"  etc.,  etc. 

Arthur  Young  seems  to  have  had  the  same  view.  After 
saying  that  every  individual  should  contribute  in  proportion 
to  his  ability,  he  added  in  a  note  :  "  By  ability  must  not  be 
understood  either  capital  or  income,  but  that  superlucration, 
as  Davenant  called  it,  which  melts  into  consumption." 

In  this  view,  so  far  as  any  one  possesses  wealth  in  forms 
available  for  the  future  production  of  wealth,  he  is  regarded 
as  a  trustee  or  guardian,  in  that  respect  and  to  that  extent,  of 
the  public  interests.  Just  this  is  said  by  Young — taxes  "  can 
reach  with  propriety  the  expenses  of  his  living  only.  If  they 
touch  any  other  part  of  his  expenditure,  they  deprive  him  of 
those  tools  that  are  working  the  business  of  the  state" 

593.  Fallacy  of  this  Doctrine  —I  do  not  see  but  that,  if 


494  POLITICAL  ECONOMY. 

capital,  or  revenue  in  excess  of  personal  expenditure,  is  to  be 
exempted  from  taxation,  on  the  plea  that  it  has  not  yet 
become  the  subject  of  individual  and  exclusive  appropriation, 
and  is,  therefore,  presumably  held  and  used  in  a  way  which 
primarily  benefits  society,  the  state  has  the  right  to  inquire 
whether  the  use  made  or  proposed  to  be  made  of  wealth  is 
such  as  will,  in  fact,  benefit  society,  and  benefit  society,  more- 
over, in  the  highest  degree  of  which  it  is  capable. 

The  citizen  says  to  the  state,  "  You  must  not  tax  this  wealth 
because  I  have  not  yet  appropriated  it  exclusively  to  myself. 
Indeed,  I  am  going  to  use  it  for  the  benefit  of  society."  The 
state  rejoins  :  "  Yes,  but  of  that  we  must  satisfy  ourselves. 
We  must  be  the  judge  whether  your  use  of  your  wealth  will 
benefit  society.  Pay  your  taxes,  and  you  can  do  with  your 
wealth  as  you  like.  Claim  exemption  on  the  ground  of  pub- 
lic service,  and  you  rightfully  come  under  state  supervision 
and  control." 

The  fallacy  of  the  theory  we  are  considering  lies  in  the 
failure  to  recognize  the  fact  that  the  selfish  and  exclusive 
appropriation  and  enjoyment  of  wealth  are  inseparable  from 
its  possession.  The  pride  of  ownership,  the  social  distinction 
which  attends  great  possessions,  the  power  which  wealth  con- 
fers, are  additional  to  the  merely  sensual  enjoyment  to  be 
derived  from  personal  expenditure.  Would  I  resent  the 
interference  of  the  government,  or  of  my  neighbors,  in  the 
management  of  my  property,  upon  the  ground  that  it  was  not 
being  used  in  the  best  way  ?  What  is  that  resentment  but  the 
proof  of  a  personal  appropriation,  an  exclusive  appropriation, 
of  that  wealth?  My  resentment  would  spring  out  of  the 
deeply  seated  feeling  that  my  management  of  my  own  prop- 
erty is  my  right  :  and  that  he  who  should  deprive  me  of  it 
would  take  from  me  what  is  as  truly  mine  as  the  right  to  eat, 
drink,  wear,  or  otherwise  consume  and  enjoy  any  portion 
of  it  ;  that,  short  of  absolute  mental  incapacity,  it  is  my  pre- 
rogative to  control  my  own  estate,  even  though  not  to  the 
highest  advantage  of  the  community,  or  even  of  myself  : 
though  not  wisely  or  well.  In  other  words,  I  am  not  a, 
trustee,  but  a  proprietor. 


THE  PRINCIPLES  OF   TAXATION.  495 

594.  The  Dangerous  Nature  of  this  Doctrine.— This  doc- 
trine of  the  Trusteeship  of  Capital  is  not  more  irrational  than 
it  is  socially  dangerous.     It  is  held  by  men  who  are  fierce  in 
denouncing  graded  taxation  as  confiscation  ;  yet  it  is,  in  its 
very  essence,  communistic.     If  the  owner  of  wealth  is  but  a 
trustee  ;  if  "  his  tools  are  working  the  business  of  the  state," 
then  the  real  beneficiary  may  enter  and  dispossess  the  trustee 
if  any  substantial  reason  for  dissatisfaction  as  to  the  manage- 
ment of  the  property  exists  ;  the  state  may  take  the  tools  into 
its  own  hands  and  "  work  its  business  "  for  itself. 

595.  Faculty  as  the  Basis  of  Taxation.— I   reach,   then, 
the  conclusion  that  Faculty,  the  power  of  production,  consti- 
tutes the  only  theoretically  just  basis  of  contribution  ;    that 
men  are  bound  to  serve  the  state  in  the  degree  in  which  they 
have  the  ability  to  serve  themselves. 

I  think  we  shall  more  clearly  see  Faculty  to  be  the  true 
natural  basis  of  taxation  if  we  contemplate  a  primitive  com- 
munity, where  occupations  are  few,  industries  simple,  realized 
wealth  at  a  minimum,  the  members  of  the  society  nearly  on  a 
level,  the  wants  of  the  state  limited.  Suppose,  now,  a  work 
of  general  concern,  perhaps  of  vital  importance,  requires  to  be 
constructed:  a  dyke  against  inundation,  or  a  road,  with 
occasional  bridges,  for  communication  with  neighboring 
settlements.  What  would  be  the  rule  of  contribution  ?  Why, 
that  all  able-bodied  persons  should  turn  out  and  each  man 
work  according  to  his  faculties,  in  the  exact  way  in  which  he 
could  be  most  useful. 

In  regard  to  a  community  thus  for  the  time  engaged,  we 
note  two  things:  first,  no  man  would  be  held  to  be  exempt 
because  he  took  no  interest  in  the  work  ;  he  would  not  be 
allowed  to  escape  contribution  because  he  was  willing  to 
relinquish  his  share  of  the  benefits  to  be  derived,  preferring  to 
get  a  miserable  subsistence  for  himself  by  hunting  or  fishing  ; 
secondly,  between  those  working,  a  higher  order  of  faculties, 
greater  muscular  power,  or  superior  skill  would  make  no  dis- 
tinction as  to  the  time  for  which  the  individuals  of  the  com- 
munity should  severally  remain  at  work. 

596.  The  Ideal  Tax.— This  is  the  ideal  tax.     It  is  the  form 


496  POLITICAL   ECONOMY. 

of  contribution  to  which  all  primitive  communities  instinct- 
ively resort.  It  is  the  tax  which,  but  for  purely  practical 
difficulties,  would  afford  a  perfectly  satisfactory  measure  of 
the  obligation  of  every  citizen  to  contribute  to  the  sustentation 
and  defense  of  the  state.  Any  mode  of  taxation  which 
departs  in  essence  from  this  involves  a  greater  or  smaller  sac- 
rifice of  the  equities  of  contribution  ;  and  any  mode  of  tax- 
ation which  departs  from  this  in  form  is  almost  certain  to 
involve  a  greater  or  smaller  departure  in  essence. 

And  it  deserves  to  be  noted  that  the  largest  tax  of  modern 
times,  even  in  the  most  highly  organized  societies  of  Europe, 
the  obligation  of  compulsory  military  service,  is  assessed  and 
collected  on  precisely  this  principle. 

597.  The  Faculty  Tax  Impracticable.— But  while  the  tax 
on    Faculty    is    the    ideal  tax,  it  has  usually  been  deemed 
impracticable,  as  the  sole  tax,  in  a  complicated  condition  of 
industrial  society.     As  occupations  multiply  and  the  forms  of 
production  become  diversified,  the  state  can  not  to  advantage 
call  upon  each  member,  by  turns,  to  serve  in  person  for  a 
definite  portion  of  each  day  or  of  the  year.     Hence  modern 
statesmanship  has  invented  taxes  on  expenditure,  on  revenue, 
on  capital,  not  as  theoretically  just,  but  with  a  view  to  reduce 
the  aggregate  burden  on  the  community,  and  to  save  produc- 
tion and  trade  from  vexation  and  obstruction. 

598.  We  recur  to  the  Tax  on  Hevenue.— The    politicians 
of  the  existing  order,  as  we  have  seen,  shrink  from  the  effort 
involved  in  levying  the  public  contributions  entirely,  or  even 
chiefly,  according  to  faculty.     Next  in  point  of  political  equity 
comes  the  tax  on  incomes,  or  the  revenues  of    individuals. 
That  tax,  as  we  now  contemplate  it,  is  a  tax  on  the  revenues  of 
all  classes,  with  exception  only  of  the  amount  requisite  for  the 
maintenance  of  the  laborer  and  his  family,  after  the  simplest 
possible  manner,  in  health  and  strength  to  labor.     It  is  not  a 
compensatory  tax,  constituting  a  part  of  a  system  in  which  real- 
ized wealth  and  various  forms  of  expenditure  are  also  brought 
under  contribution,  but  the  sole  tax  imposed  by  the  state. 

599.  Exemption  of  the  Actual  Necessaries  of  Life. — It 
has  been  said  that  from  such  an  income  tax  the  necessary  cost 


THE  PRINCIPLES  OF   TAXATION.  497 

of  subsistence  must  be  exempted.  Mr.  D.  A.  Wells  has, 
indeed,  laid  down  two  propositions:  first,  that  "any  income 
tax  which  permits  of  any  exemption  whatever  is  a  graduated 
income  tax  ;  "  and,  secondly,  that  "  a  graduated  income 
tax  to  the  extent  of  its  discrimination  is  an  act  of  con- 
fiscation." But  the  exemption  of  a  certain  minimum 
annual  revenue  is  a  matter  of  sheer  necessity,  whether  the 
state  will  or  no.  Economically  speaking,  it  is  not  possible  to 
tax  an  income  of  this  class.  A  man  in  the  receipt  of  such  an 
income  can  not  contribute  to  the  expenses  of  government. 
Should  the  state,  with  one  hand,  take  any  thing  from  such  a 
person  as  a  taxpayer,  it  must,  with  the  other,  give  it  back 
to  him  as  a  pauper. 

Conceding  the  exemption,  on  purely  economic  grounds,  of 
the  amount  required  for  the  maintenance  of  the  laborer's  fam- 
ily, one  of  the  most  vital  questions  in  finance  arises  imme- 
diately thereupon*,  to  wit  :  shall  the  excess  above  the  mini- 
mum, shall  the  superfluity  of  revenue,  which  may  be  spent  or 
saved  at  the  will  of  the  owner,  be  taxed  at  a  uniform  rate,  or 
at  rates  rising  with  the  increase  of  income  ? 

600.  The  Question  of  Progressive  Taxation. — The  ques- 
tion of  progressive  taxation  has  always  been  one  of  great 
interest  while  the  fiscal  policy  of  states  rested  with  the 
wealthy  and  well-to-do  classes.  It  is  certain  to  acquire  vastly 
greater  importance  as  political  power  passes  more  and  more 
into  the  hands  of  the  class  of  small  incomes. 

Upon  the  question  of  the  equity  of  progressive  taxation 
writers  on  finance  are  divided.  One  party  holds  that  any 
recognition  of  this  principle  is  sheer  confiscation:  the  other 
admits  that  progressive  taxation  may  be  carried  to  a  certain 
point  without  injury  either  to  the  sense  of  political  justice  or 
to  the  instincts  of  industry  and  frugality,  some  even  holding 
with  J.  B.  Say  that  "  taxation  can  not  be  equitable  unless  its 
ratio  is  progressive."  Both  parties  agree  that  there  is  great 
danger  that,  under  popular  impulse,  progressive  taxation  may 
be  carried  so  far  as  not  only  to  violate  all  the  equities  of  con- 
tribution but  seriously  to  shock  the  habits  of  acquiring  and 
saving  property. 


498  POLITICAL   ECONOMY. 

The  system  of  progressive  taxation  prevailed  at  Athens. 
There  were  four  Soloniau  classes  of  citizens,  arranged  accord- 
ing to  wealth.  Of  these  the  first  paid  no  taxes  ;  the  class 
next  above  them  were  entered  on  the  tax-books  at  a  sum 
equal  to  five  times  their  income  ;  the  next  class  at  ten  times 
their  income  ;  the  richest  class  at  twelve  times  their  income. 

The  principle  of  graduation,  or  progressive  taxation,  was  a 
favorite  one  with  the  statesmen  of  the  French  Revolution. 
It  was  for  a  time  adopted  by  the  Convention  in  1793.  In  con- 
sequence, perhaps,  of  the  appetite  thus  created  among  the 
people  for  laying  the  burdens  of  government  mainly  on  the 
rich,  many  of  the  later  French  writers  on  finance  have  been 
very  strenuous  in  denouncing  the  principle. 

Yet  this  system  was  approved,  as  we  saw,  by  Say,  and  also 
by  Montesquieu.  In  the  personal  tax,  wrote  the  latter,  "  the 
unjust  proportion  would  be  that  which  should  follow  exactly 
the  proportion  of  goods."  Referring  to  the  Solonian  Cate- 
gories at  Athens,  he  said  :  "  The  tax  was  just,  though  it  was 
not  proportional.  If  it  did  not  follow  the  proportion  of  goods, 
it  did  follow  the  proportion  of  needs.  It  was  judged  that 
each  had  equal  physical  necessities,  and  that  those  necessities 
ought  not  to  be  taxed;  that  the  useful  came  next,  and  that  it 
ought  to  be  taxed,  but  less  than  what  was  superfluous;  and 
lastly,  that  the  greatness  of  the  tax  on  the  superfluity  should 
repress  the  superfluity." 

In  1848,  at  the  Revolution,  the  idea  of  progressivity  was 
revived.  The  provisional  government  in  a  decree,  said : 
"  Before  the  Revolution  taxation  was  proportional  ;  then  it 
was  unjust.  To  be  truly  equitable,  taxation  must  be  progress- 
ive." 

M.  Joseph  Gamier,  editor  of  the  Journal  des  Economistes, 
makes  a  distinction  between  progressive  taxation,  properly  so 
called,  and  progressional  taxation.  It  is,  he  says,  against  the 
first  that  all  the  objections  are  directed  which  we  find  in 
writers  who  declare  that  progressive  taxation  is  a  species  of 
confiscation,  tending  to  the  absorption  of  great  fortunes  by 
the  state,  to  the  leveling  of  conditions,  to  the  destruction  of 
property,  to  the  discouragement  of  frugality  and  industry,  to 


PROGRESSIVE    TAXATION. 


499 


the  emigration  of  capital.  There  is,  M.  Gamier  holds,  a 
species  of  increasing  taxation  which  is  rational  and  discreet, 
to  which  he  applies  the  term  progressional,  which  is  held 
within  moderate  limits,  which  is  collected  by  virtue  of  a  tariff 
of  duties  slowly  progressive,  and  which,  at  the  maximum, 
can  not  pass  beyond  a  definite  portion  of  the  income  of  the 
individual. 

In  Prussia  the  tax  on  small  incomes,  known  as  the  Klas- 
sensteuer,  is  levied  on  a  scale  of  twelve  degrees. 

In  England  the  principle  of  progression  has  never  been  ad- 
mitted into  the  income  tax  further  than  is  involved  in  the 
exemption  of  a  certain  minimum.  How  the  subtraction  of  a 
constant  amount  from  all  incomes,  and  the  taxation  of  the 
excess  at  a  uniform  rate,  causes  the  rate  on  the  total  incomes 
to  rise,  from  lowest  to  highest,  will  appear  from  the  following 
table. 

601.  The  Effect  of  Exemptions.— If  we  suppose  the  con- 
stant amount  exempted  to  be  $1,000,  and  the  rate  of  taxation 
on  the  excess  to  be  ten  per  cent.,  incomes  of  different  amounts 
will  in  effect  be  taxed  as  follows  : 


Income. 

Income    subject     to 
Taxation. 

Amount  of  Tax. 

Rate  of  Taxation  on 
Total  Income. 

$1500 
2000 

$    500 
1000 

$  50 
100 

3.33  +  per  cent. 
5 

2500 

1500 

150 

6 

3000 

2000 

200 

6.66  + 

3500 

2500 

250 

7.14  + 

4000 

3000 

300 

7.5 

4500 

3500 

350 

7.77  + 

But  while  the  principle  of  progressivity  has  never  been  ad- 
mitted into  the  income  tax  of  England,  it  has  been  extensively 
applied  to  the  so-called  "  Assessed  Taxes  ;"  that  is,  taxes  on 
carriages,  horses,  servants,  etc. 

602.  The  question  of  progressive  taxation  is  a  nice  one  in 
theory,  while  in  its  practical  application  it  is  beset  with  the 
gravest  difficulty,  arising  out  of  the  instincts  of  spoliation 
which  are  deeply  rooted  in  the  human  breast,  an  inheritance 


500  POLITICAL    ECONOMY? 

from  ages  of  universal  warfare  and  robbery.  The  appetite 
for  plundering  the  accumulated  stock  of  wealth,  once  aroused, 
may  become  a  formidable  social  and  political  evil. 

Were  the  highest  human  wisdom,  with  perfect  disinterest- 
edness, to  frame  a  scheme  of  contribution,  I  must  believe  that 
the  progressive  principle  would  in  some  degree  be  admitted  ; 
but  in  what  degree,  and  by  what  means,  I  am  at  a  loss  to 
suggest. 

That  progressive  taxation  would  be  the  demand  of  triumph- 
ant socialism,  as  it  was  of  the  Revolutionists  of  1793  and  1848, 
we  already  know.  That  progressive  taxation  will  be  urged  in 
the  spirit  of  spoliation  and  confiscation,  is  most  probable.  The 
friends  of  the  existing  order  will  do  well  to  be  prepared  to 
take  their  ground  intelligently  and  maintain  it  with  firmness 
and  temper. 

603.  A  Tax  on  Revenue  Impracticable  as  the  Sole  Tax. — 
While,  as  the  sole  tax,  the  tax  on  revenue  has  been  approved, 
on  grounds  of  political  justice,  by  many,  perhaps  most, 
writers  on  finance,  it  has,  like  the  tax  on  faculty,  generally 
been  rejected  as  impracticable,  in  view  of  difficulties  in  assess- 
ment, affecting  incomes  both  high  and  low,  more  indeed  the 
higher  than  the  lower,  and  difficulties  of  collection,  affecting 
especially  incomes  of  the  lowest  class.  Few  writers  of  reputa- 
tion, have,  without  qualification,  advocated  such  an  income 
tax  as  both  politically  expedient  and  economically  advan- 
tageous. Fewer  statesmen  have  had  the  courage  to  propose 
it  to  the  legislature. 

Revenue,  or  income,  having,  then,  been  abandoned  generally 
throughout  modern  society  as  the  sole  basis  of  taxation,  and 
only  in  exceptional  cases  forming  even  an  important  feature 
of  existing  tax  systems,  Expenditure  has  been  resorted  to 
increasingly,  in  the  past  and  present  century,  from  considera- 
tions not  so  much  of  political  equity  as  of  political  and  fiscal 
expediency.  By  far  the  greater  portion  of  the  revenue  of  the 
most  advanced  states  is  derived  from  taxes  on  consumption, 
as  they  are  called  ;  and  every  new  demand  of  the  treasury  is 
met  mainly  from  this  source. 

Yet  even  now  Wealth  is  still  employed  in  many  communities 


REVENUE   OR   CAPITAL?  501 

as  the  sole  basis  of  taxation,  the  measure  of  the  obligation  to- 
contribute  to  the  support  of  government.  It  was  the  pre- 
ferred form  of  taxation  throughout  the  American  colonies. 
It  is  still  the  principal  form  of  non-federal  taxation  in  the 
United  States,  as  the  Grand  Lists  of  townships,  cities  and 
counties  testify. 

604.  Is  a  Tax  on  Capital  Equitable  ? — How  can  a  tax  on 
realized  wealth  or  capital  be  justified  ? 

Let  us  take  two  cases  :  first,  when  income  is  not  taxed  ;  sec- 
ondly, when  income  is  taxed. 

First,  when  income  is  not  taxed.  It  is  claimed  that  the 
result  of  realized  wealth  affords  the  best  practical  measure  of 
income  or  of  productive  faculty.  Now,  that  such  a  claim  in. 
behalf  of  a  property-tax  should  be  conceded,  or  even  seriously 
considered,  clearly  requires  two  things  :  first,  that  the  ne'er- 
do-weels  shall  be  comparatively  few  in  number  ;  and  secondly, 
that  the  disposition  to  save  out  of  income,  for  the  accumula- 
tion of  wealth,  shall  be  the  general  rule  in  the  community- 
These  requirements  were  met  in  the  American  colonies  gener- 
ally. Barring  the  effects  of  intemperance,  it  was  a  rule  with 
few  exceptions  that  Americans  in  those  times  were  disposed 
to  labor,  and  to  labor  hard,  that  they  might  produce  wealth  ; 
while,  so  general  was  the  desire  of  wealth,  so  stalwart  the 
manhood  of  those  times,  so  simple  the  habits  of  the  people, 
so  high  the  social  importance  attributed  to  the  possession  of 
capital,  that  all  the  surplus  above  decent,  wholesome  subsist- 
ence, after  adequate  provision  for  intellectual  and  religious 
culture,  was  likely  to  go  towards  accumulation. 

The  mere  statement  of  these  elements  of  the  case  suffices  to 
show  the  difficulties  besetting  such  a  principle  of  taxation,  in 
its  application  to  communities  like  those  of  the  present  day, 
with  a  less  stringent  piiblic  sentiment,  with  more  extravagant 
modes  of  living,  with  a  less  general  elevation  of  tastes  and 
ambitions,  with  greater  proneness  to  self-indulgence,  with 
vast  classes  that  do  not  even  try  to  save.  In  such 
a  state  of  society,  to  tax  only  that  part  of  revenue  which 
is  laid  by  for  future  consumption,  or  to  assist  in  the  fur- 
ther production  of  wealth,  is  both  politically  unjust  and  eco- 


502  POLITICAL    ECONOMY. 

nomically  vicious,  exciting  to  extravagance  and  discouraging 
frugality. 

Secondly.  But  if  a  tax  be  imposed  on  income,  how  can 
a  property-tax  be  justified  at  all  ?  Have  not  the  whole  com- 
munity been  once  taxed  upon  income,  as  affording  a  measure 
of  the  ability  to  contribute  to  the  public  service,  and  shall  now 
a  portion  of  the  wealth  so  excised  be  again  subject  to  deduc- 
tion, on  no  other  ground  than  that  it  has  been  saved,  presum- 
ably to  assist  in  future  production  ? 

605.  The  Purely  Economic   Theory  of  Taxation. — Mr. 
McCulloch,  the  author  of  one  of  the  few  works  of  value  in  the 
English  literature  of  Taxation,  boldly  proposed  to  abandon 
altogether  the  attempt  to  follow  out  the  equities  of  contribu- 
tion.    I  have  already  quoted  his  statement  :     "  The  distin- 
guishing feature  of  the   best  tax,    is,  not    that  it    is    most 
nearly  proportioned  to  the  means   of  individuals,  but  that  it 
is  easily  assessed  and  collected,  and  is,  at  the  same  time,  most 
conducive  to  the  public  interests." 

The  line  of  reasoning  which  leads  up  to  Mr.  McCulloch's 
conclusions  may  be  stated  as  follows  :  Government  springs 
from  injustice,  and,  in  the  constitution  of  things,  must  com- 
mit more  or  less  injustice.  It  is  of  no  use  to  attempt  to 
pursue  the  equities  of  contribution;  they  will  elude  you.  It  is 
admitted  that  it  is  impossible  to  distribute  equally  the  benefits 
of  government;  why  make  the  hopeless  effort  to  apportion  its 
burdens  with  absolute  justice?  Get  the  best  government  you  can; 
maintain  it  at  the  least  expense  consistently  with  efficiency  ; 
collect  the  revenue  for  the  service  by  the  most  convenient, 
simple  and  inexpensive  means.  By  undertaking  to  effect  an 
equitable  apportionment  of  the  burden,  through  complicated 
methods  or  by  personal  assessment,  you  are  not  only  likely  to 
fail  ;  you  are  certain,  at  the  best,  to  add  to  the  aggregate  cost 
of  the  sei'vice,  and  are  in  great  danger  of  generating  new  and 
distinct  evils  by  disturbing  economic  relations  and  obstruct- 
ing the  processes  of  production  and  exchange. 

606.  The  Theory  of  the  Repercussion  or    Diffusion    of 
Taxes. — While  writers   on  finance  have  commonly   insisted 
that  the  equities  of  contribution  should  govern  in  assessment, 


DIFFUSION  OF   TAXES.  503.- 

a  belief  in  the  so-called  Repercussion,  or  diffusion,  of  taxes 
has  led  economists  very  generally  to  give  their  approval  to 
the  system  of  indirect  taxation,  the  growth  of  which  forms 
the  most  marked  feature  of  the  fiscal  history  of  the  present 
century. 

Let  the  state,  it  is  said,  levy  its  contribution  on  such  articles 
of  general  consumption  as  are  most  easily  reached,  or  on  such 
of  the  processes  of  production  or  exchange  as  lie  most  open 
to  view,  trusting  to  the  laws  of  trade  to  distribute  the  burden 
over  the  whole  body  of  the  population. 

This  plea  raises  the  question  of  the  Incidence,  the  ultimate 
incidence,  of  taxation.  "  I  hold  it  to  be  true,"  said  Lord 
Mansfield  in  his  speech  on  taxing  the  Colonies,  "  that  a  tax 
laid  in  any  place  is  like  a  pebble  falling  into  and  making  a 
circle  in  a  lake,  till  one  circle  produces  and  gives  motion  to 
another,  and  the  whole  circumference  is  agitated  from  the 
center."  Taxes  uniformly  advanced  on  all  like  competing 
property,"  says  Mr.  Wells,  "  will  always  tend  to  equate  them- 
selves, and  will  never  be  a  special  burden  to  those  who  origin- 
ally made  the  advances  to  the  government." 

607.  How  do  Taxes  Tend  to  Diffusion  ?— This,  which 
may  be  called  the  Diffusion-theory  of  taxation,  rests  upon  the 
assumption  of  perfect  competition.  It  is  true,  to  the  full 
extent,  only  under  conditions  which  secure  the  complete 
mobility  of  all  economic  agents.  As  far  as  members  of  the 
community  are  impeded  in  their  resort  to  their  best  market 
by  ignorance,  poverty,  fear,  superstition,  misapprehension, 
inertia,  just  so  far  is  it  possible  that  the  burden  of  taxation 
may  rest  where  it  first  falls.  It  requires,  as  Prof.  Thorold 
Rogei-s  has  said,  an  effort  on  the  part  of  the  person  who  is 
assessed  to  shift  the  burden  on  to  the  shoulders  of  others. 
Not  only  is  that  effort  made  with  varying  degrees  of  ease  or 
difficulty  ;  but  the  resistance  offered  may  be  of  any  degree  of 
effectiveness:  powerful,  intelligent,  tenacious,  or  weak,  ignor- 
ant, spasmodic.  The  result  of  the  struggle  thus  provoked 
will  depend  on  the  relative  strength  of  the  two  parties  ;  and 
as  the  two  parties  are  never  precisely  the  same  in  the  case  of 
two  taxes,  or  two  forms  of  the  same  tax,  it  must  make  a  dif- 


504  POLITICAL   ECONOMY. 

f  erence  upon  what  subjects  duties  are  laid,  what  is  the-severity 
of  the  imposition,  and  at  what  stage  of  production  or  exchange 
the  contribution  is  exacted.  It  is  not,  it  never  can  be,  a 
matter  of  indifference  when,  where,  and  how  taxes  are  im- 
posed. "  The  ability  to  evade  taxation,"  writes  M.  Say,  "  is 
infinitely  varied,  according  to  the  form  of  assessment  and  the 
position  of  each  individual  in  the  social  system.  Nay,  more, 
it  varies  at  different  times.  There  are  few  things  so  unsteady 
and  fluctuating  as  the  ratio  of  the  pressure  of  taxation  upon 
each  class,  by  turns,  in  the  community." 

608.  M.  Say's  Views.— It  has  always  seemed  to  me  strange 
that  J.  B.  Say  should  be  cited,  as  he  so  often  is,  as  an  author- 
ity on  the  side  of  the  Diffusion-theory  of  taxation.     Not  only 
in  the  paragraph  from  which  I  have  quoted  does  he  recognize 
the  vital  importance  of  the  right  "  seating  "  of  taxes  ;  but  in 
his  references  to  the  essay  of  Canard,  which  had  been  crowned 
by    the    Academy    (1802),    he    is    even    more    pronounced. 
Canard  had  said  that  it  is  of  little  importance  whether  a  tax 
press  upon  one  bi'anch  of  revenue  or  another,  provided  it  be 
of  long  standing,  because  every  tax  in  the  end  affects  every 
class  of  revenue  proportionally,  as  bleeding  in  the  arm  reduces 
the  circulating  blood  in  every  portion  of  the  human  frame. 
To  this  M.  Say  rejoins  that  the  object  taken  for  comparison 
has  no  analogy  with  taxation.     The  wealth  of  society  is  not  a 
fluid,  tending  continually  to  a  level.     It  is,  the  rather,  an 
organism,  like  a  tree  or  a  man,  no  part  of  which  can  be  lopped 
off  without  permanently  disfiguring  and  crippling  the  whole. 

609.  M.  de  Parieu's  Views. — M.    de    Parieu  has   given    a 
chapter  of  his  great  work  to  the  Incidence  of  Taxation.     In 
respect  to  what  he  calls  taxes  levied  upon  the   conditions  of 
every  human  existence,  he  reaches  the  result  that  they  have 
effects  very  obscure,  and  in  a  still  greater  degree  subject  to 
dispute.     Where  taxes  are  levied  in  cities  upon  the  necessaries 
of  life,  he  finds  no  considerable  danger  of  evil  effects,  since 
there  is  a  constant  intercommunication  between  the  laborers 
of  towns  and  those  of  rural  districts,  and  migration  will  soon 
restore  the  equilibrium  after  the  disturbance  created  by  the 
new  impost.     It  is  otherwise  when  a  new  tax    is    imposed 


INCIDENCE    OF    TAXATION.  505 

throughout  the  whole  extent  of  a  country.  The  emigration 
of  laborers  to  foreign  parts  is  only  accomplished  against  a 
certain  resistance,  arising  out  of  their  habitudes  and  affections. 
It  is  always,  moreover,  accomplished  at  a  definite  loss  and  an 
indefinite  risk.  To  throw  taxes  on  consumption  back  upon 
the  capitalist  or  the  employer  becomes,  in  M.  de  Parieu's 
judgment,  a  task  very  difficult  and  of  ten  wholly  impracticable. 

610.  Conclusion. — I  reach  the  conclusion  that,  in  a  condi- 
tion of  imperfect  competition,  we  have  no  assurance  that  in- 
direct taxes  will  be  diffused  equably  over   the  whole  com- 
munity, leaving  each  class  and  each  individual  in  the  same 
relative  condition  as  before  the  imposition.     Something  less, 
it  may  be  much  less,  than  a  proportional  contribution  must 
result  from  the  differing  strength  and  opportunities  of  the 
several  classes  and  individuals.     The  legislator  can  not,  then, 
adopt  the  comfortable  doctrine   of  the  indifference  of   the 
place  and  the  person  where  and  on  whom  the  burden  shall  be 
laid.     His  responsibility  abides  for  the  ultimate  effects  of  the 
taxes  he  imposes.     Whether  with  reference  to  the  equities  of 
contribution  or  to  the  general  interests  of  trade  and  produc- 
tion, he  is  bound  cai'ef  ully  to  consider  the  nature  and  probable 
tendencies  of  every  projected  impost. 

XVII. 

PROTECTION  VS.  FREEDOM  OF  PRODUCTION. 

611.  The  Doctrine  of  Laissez-Faire.— The     question     of 
Protection,  as  against  Freedom  of  Production — not,  as  it  is 
commonly  stated,  against  Freedom  of  Trade — is  rarely  dis- 
cussed, on  both  sides,  upon  purely  economic  principles  ;  perhaps 
has  never  been,  in  an  actual  instance,  decided  without  the 
intermixture  of  political  or  social  considerations. 

The  arguments  of  those  who  have  favored  the  policy  of  so 
far  limiting  the  territorial  division  of  labor  (see  par.  83),  as  to 
constitute  industrial  entities  corresponding  to  existing  polit- 
ical entities  (which  I  take  to  be  the  real  intent  of  what  is 
called  Protection)  have  been  of  every  degree  of  vagueness  ; 


506  POLITICAL  ECONOMY. 

but  it  seems  to  me  that  the  confusion  of  the  public  mind  need 
not  have  existed,  at  least  to  so  great  an  extent,  had  not  the 
professional  economists  taken  an  unjustifiably  lofty  attitude  on 
this  subject,  practically  refusing  to  argue  the  question  at  all 
as  one  of  national  expediency,  contenting  themselves  with 
occupying  the  high  ground  of  Laissez-Faire. 

Now,  that  doctrine,  although  established  by  the  older  econ- 
omists to  their  own  satisfaction,  as  containing  a  principle  of 
universal  application,  and  thus  deemed  by  them  a  conclusive 
answer  to  all  arguments  specially  directed  to  justify  restric- 
tions upon  international  trade,  has  never  been  accepted,  in 
the  fullness  of  significance  by  them  given  it,  throughout  any 
wide  constituency,  not  by  any  large  proportion  of  the  educa- 
ted classes,,  not  even  generally  by  publicists,  or  statesmen,  or 
men  of  affairs. 

612.  Opposition  of  the  Economists  to  Factory  Legisla- 
tion.— Thus,  when  factory  legislation  was  first  proposed  in 
England,  nearly  the  whole  body  of  professional  economists 
opposed  any  interference  with  the  freedom  of  contract 
respecting  labor.  They  asserted  the  entire  competence  of  the 
laboring  classes  to  protect  their  own  interests.  They  declared 
that  interference  on  behalf  of  the  laboring  classes  could  only 
be  mischievous,  in  the  long  run,  to  the  laborers  themselves. 
They  put  themselves  on  record  in  the  most  formal  manner 
against  all  measures  of  restriction  upon  factory  and  work- 
shop labor.  They  cast  in  their  lot  with  the  opposition  to  this 
class  of  legislation,  and  staked  the  reputation  and  influence 
of  political  economy  upon  their  being  right  in  this  matter. 

Had  they  won  upon  that  issue  ;  had  the  results  of  the  fac- 
tory acts  been  proven  deleterious  to  the  interests  of  the  work- 
ing classes  themselves,  or  even  to  the  industrial  power  of  the 
kingdom,  it  would  have  been  a  rare  triumph  for  the  econo- 
mists, and  their  influence  would  have  been  greatly  strength- 
ened. But  it  did  not  turn  out  so.  Although  in  the  first 
instance,  that  of  the  act  of  1802,  Sir  Robert  Peel,  the  elder, 
had  been  so  solicitous  not  to  violate  the  principle  of  the  self- 
sufficiency  of  labor  that  he  made  the  bill  apply  only  to  appren- 
tices, the  wards  of  the  state,  the  political  rightfulness  and  the 


FREEDOM :     THE   RULE.  5 07 

economic  expediency  of  regulating  the  contract  for  labor  so 
grew,  upon  the  public  mind  of  England,  that  act  after  act 
extended  the  supervision  of  the  state  over  factory  and  work- 
shop until  the  policy  of  restriction  had  vindicated  itself  to 
the  complete  satisfaction  of  the  working-classes,  even,  in  the 
main,  of  the  master  class,  themselves,  and  of  the  statesmen 
of  the  kingdom  and  publicists  almost  without  exception. 

613.  Freedom  the  Rule:  Restraint  the  Exception.— 
The  fact  that  in  the  controversy  over  the  factory  acts  the 
economists  of  the  laissez-faire*  school  are  proved  to  have  been 
in  the  wrong,  does  not  show,  or  go  to  show,  that  they  are 
wrong  in  their  opposition  to  laws  in  restraint  of  international 
commerce.  It  does  not  even  create  a  presumption  to  that 
effect.  ' 

Although  the  necessity  of  making  exceptions  to  the  rule  of 
freedom  of  individual  action  has  been  established  as  com- 
pletely in  respect  to  industry  as  in  respect  to  politics,  freedom 
of  action  is  yet  so  far  the  condition  of  health  and  power  and 
growth  in  the  field  alike  of  politics  and  of  industry,  that  those 
who  propose  to  make  exceptions  in  either  are  bound  to  show 
cause  for  every  such  exception.  A  heavy  burden  of  proof 
rests  upon  them.  Their  case  is  to  be  made,  and  made  against 
a  powerful  presumption  in  favor  of  liberty,  as  that  condition 
which  hath  the  promise  not  only  of  that  which  now  is,  but,  in 
a  higher  degree,  of  that  which  is  to  come.  There  is  not  and 

*  ' '  Now  I  beg  you  to  remark  the  strange  assumptions  that  underlie 
this  reasoning.  Human  interests  are  naturally  harmonious  ;  therefore  we 
have  only  to  leave  people  free,  and  social  harmony  must  result ;  as  if  it 
were  an  obvious  thing  that  people  knew  their  interests  in  the  sense  in 
which  they  coincide  with  the  interests  of  others,  and  that,  knowing 
them,  they  must  follow  them  ;  as  if  there  were  no  such  things  in  the 
world  as  passion,  prejudice,  custom,  esprit  de  corps,  class  interest,  to  draw 
people  aside  from  the  pursuit  of  their  interests  in  the  largest  and  highest 
sense.  Nothing  is  easier  than  to  show  that  people  follow  their  interest, 
in  the  sense  in  which  they  understand  their  interest.  But  between  this 
and  following  their  interest  in  the  sense  in  which  it  is  coincident  with 
that  of  other  people,  a  chasm  yawns.  That  chasm  in  the  argument  of  the 
laissez-faire  school  has  never  been  bridged.  The  advocates  of  tJie  doctrine 
shut  their  eyes  and  leap  over  it." — Prof.  John  E.  Cairnes. 


508  POLITTCAL  ECONOMY. 

there  can  never  be  any  positive  virtue  in  restraint.  Its  only 
office  for  good  is  to  prevent  waste  and  save  the  misdirection  of 
energy.  There  is  no  life  in  it,  and  no  force  can  come  out  of  it. 

That  which  is  called  "protection  "  operates  only  by  restraint; 
it  has  and  can  have  neither  creative  power  nor  healing 
efficacy.  All  the  energy  that  is  to  produce  wealth  exists 
before  it  and  without  respect  to  it  ;  and  just  to  the  extent  to 
which  protection  operates  at  all,  it  operates  by  impairing  that 
energy,  and  reducing  the  sum  of  wealth  that  might  be  pro- 
duced if  protection  did  not  exist. 

I  say,  that  might  be  produced,  not  that  would  be  produced. 
The  latter  point  may  fairly  be  disputed  between  the  free- 
trader, who  should  rather  be  called  the  free-producer,  and  the 
advocate  of  the  system  of  restricted  production.  The  force 
of  the  steam  at  the  piston-head  is  less  than  the  force  of 
the  steam  in  the  boiler,  less  by  all  that  is  necessary  to 
conduct  it  thither  from  the  boiler  ;  yet  it  is  the  force  of  the 
steam  at  the  piston-head,  and  not  where  it  is  generated,  which 
moves  the  wheels  of  the  engine.  The  harness  hampers  the 
movements  of  the  horse  ;  but  it  is  the  harnessed  horse  that 
draws  the  load.  Discipline  operates  directly  to  reduce  the 
sum  of  the  impulses  by  which  soldiers  are  actuated,  and,  by 
consequence  to  reduce  their  individual  energy;  but  a  disciplined 
army  will  defeat  a  mob  of  many  times  its  own  numbers. 

614.  What  the  Protectionist  Has  to  Prove.— If  the  pro- 
tectionist can  show  that  restraints  imposed  by  law  upon  the 
industrial  action  of  his  countrymen,  or  the  men  of  any  country 
he  chooses  to  take  for  the  purposes  of  the  debate,  have  the 
effect,  not,  indeed,  to  generate  productive  force,  but  to  direct 
the  productive  force  generated  by  human  wants  setting  in 
motion  human  labor  with  a  better  actual  result*  than  under 

*Much  as  I  admire  the  pithiness  and  vigor  of  Prof.  Sumner's  argu- 
ment before  the  Tariff  Commission,  in  1883,  I  can  not  but  think  that  he 
unduly  disparages  the  losses  to  production  which  occur  under  the  regime 
of  free-exchange.  I  have  in  another  place  (pars.  99-109,  and  again  236  to 
243)  adduced  considerations  which  seem  to  me  to  justify  a  very  serious 
view  of  the  extent  and  importance  of  these  losses.  Let  the  protectionist, 
if  he  can,  show  good  grounds  for  believing  that  under  the  system  he 
^roposes  there  would  be  a  better  outcome. 


NATIONALITY  AND  INDUSl^RY.  509 

the  rule  of  freedom,  he  will  make  his  case.  But  this  is  to  be 
proved,  not  taken  for  granted  ;  and  it  is  to  be  proved  only  by 
sound  and  serious  argument,  not  by  strenuous  assertion  and 
senseless  clamor. 

615.  Why  Should  Industrial  Correspond  to  Political  En- 
tities ?— In  proceeding  to  establish  the  importance  of  checking 
the  extension  of  the  territorial  division  of  labor  at  the  boundary 
lines  of  nationalities,  the  protectionist  writers  have  been  ser- 
iously embarrassed  from  the  lack  of  reasons  to  give  why  indus- 
trial entities  ought  to  correspond  to  political  entities.  Had  they 
undertaken  to  show  that  every  million  or  five  millions  of  peo- 
ple might  advantageously  be  organized  into  a  separate  indus- 
trial entity,  having  either  no  commercial  intercourse  at  all 
with  communities  on  the  outside,  or  a  commercial  intercourse 
much  reduced  and  retarded  ;  or  had  the  protectionist  writers 
undertaken  to  show  that  every  ten  or  twenty  square  degrees 
upon  the  earth's  surface,  whatever  the  number  of  inhabitants, 
should  become  an  industrial  entity,  trade  within  the  limiting 
parallels  and  meridians  being  unrestrained  and  even  encour- 
aged, while  trade  across  those  lines  should  be  deemed  in  a 
higher  or  lower  degree  mischievous  ;  or  had  these  writers 
undertaken  to  show  that  every  important  river  basin  or 
drainage  system  should  be  constituted  an  industrial  entity,  in 
as  great  a  degree  as  possible  independent  of  others,  they  would 
have  had  a  much  less  difficult  task.  A  good  deal  might  be  said 
upon  the  theme  that  the  world-wide  extension  of  the  principle 
of  the  division  of  labor  needs  to  be  crossed  and  checked  by  arti- 
ficial obstructions  to  prevent  certain  economic  and  social  evils. 

We  have  shown  (par.  227  to  243)  that  grave  industrial 
mischiefs  may  originate  in  this  principle,  though  which  pro- 
ducer and  consumer  are  set  apart,  often  by  a  vast  distance, 
sometimes  by  half  the  circumference  of  the  globe  ;  that  mis- 
understandings may  arise  between  producer  and  consumer 
which  will  result  in  a  smaller  production  of  wealth,  a  lower 
satisfaction  of  human  wants,  and  that  these  misunderstandings 
are  sometimes  aggravated  by  suspicion  or  panic  with  the 
most  deplorable  consequences.  The  fact  is  incontestable, 
and  it  would  be  easy  to  exaggerate  its  importance. 


5io  POLITICAL    ECONOMY. 

But  when  the  attempt  is  to  prove  that  the  principle  of  the 
division  of  labor  should  be  allowed  to  extend  itself  freely 
within  the  bounds  of  nationality  but  not  beyond  them,  addi- 
tional difficulties  of  a  grave  character  are  encountered  at  the 
outset,  in  the  great  and,  from  the  economic  point  of  view, 
unaccountable  irregularity  and  whimsicalness  with  which  the 
surface  of  the  earth  is  divided  among  independent 
sovereignties.  One  nation  comprises  two  millions  of  inhabi- 
tants, like  Denmark,  Greece  or  Chili ;  another  ten,  like  Mexico, 
Brazil  or  Siam  ;  another  thirty,  like  Italy  or  Japan  ;  another 
sixty,  like  the  United  States  ;  another  eighty,  like  Russia  ; 
another  three  hundred  and  fifty,  like  China.  The  territory 
occupied  by  one  nation  crosses  and  includes  two,  three  or  five 
great  river  systems  ;  in  other  cases,  one  river  system  embraces 
the  territory  of  two,  three  or  five  nations.  A  stream  which  a 
boy  can  wade  may  form  the  dividing  line  of  two  independent 
states  ;  a  third  state  may.collect  its  revenues  across  the  Atlan- 
tic and  the  Pacific  oceans,  and  its  magistracy  send  their  war- 
rants alike  to  Hudson's  Bay  and  into  the  South  Sea.  One 
people  may  stretch  from  North  to  South  across  sixty  degrees 
of  latitude  ;  another  from  East  to  West,  through  half  the  daily 
journey  of  the  sun.  One  country  may  be  occupied  by  a  popu- 
lation as  homogeneous  as  the  inhabitants  of  some  old  city  • 
while  under  the  same  flag,  and  subject  to  the  same  laws,  may 
live  the  representatives  of  many  races  :  some  dressed  in 
the  latest  Paris  fashion,  others  tattooed  upon  the  naked 
skin  ;  some  using  the  telephone,  others  the  assegai  ;  some 
finding  their  choicest  amusement  in  the  Wagnerian  opera, 
others  in  the  war  dance  that  opens  the  feast  of  human 
flesh. 

616.  The  United  States  as  an  Instance.— It  will  readily 
appear  that  the  protectionist  writers  have  a  difficult  task  in 
establishing  the  necessity  of  drawing  the  lines  of  industrial 
circumvallation  along  the  boundaries  of  empire. 

Take  the  United  States  for  example.     Here  are  thirty-eight 
states  trading  among  themselves  with  the  utmost  activity,  the  . 
exchange  of  commodities  and  services  being  as  free  as  the 
movements  of  the  air  ;  and  in  this  freedom  all  good  citizens 


THE    STRONG  AND    THE    WEAK.  511 

rejoice.*  But  this  condition  of  things  is  made,  by  the  doc- 
trine under  examination,  to  be  dependent  entirely  upon  the 
political  relations  of  these  states.  Were  they  under  different 
governments,  the  exchange  of  commodities  and  services 
which  now  promotes  the  general  wealth  and  the  general 
welfare  would  be  fraught  with  mischief  and  possible  ruin. 

It  is,  of  course,  possible  that  some  new  analysis  of  the  con- 
ditions of  production  may  yet  disclose  the  law  which  thus 
makes  trade  within  the  limits  of  sovereignty  beneficial,  and 
trade  across  the  boundaries  of  separate  states  deleterious  to 
one  or  both  parties  ;  but  thus  far  assertion  coupled  with  vitu- 
peration has  taken  the  place  of  the  analysis  required. 

617.  Protecting  the  Strong  against  the  Weak — In  the  old 
world,  the  argument  for  protection  is  based  on  the  importance 
of  protecting  the  industrially  weak  against  the  industrially 
strong  ;  and  I  am  not  certain  that  something  might  not  be  said 
for  this.  Russia  strives  to  protect  her  labor  against  the  better 
paid  labor  of  Germany  ;  Germany,  in  turn,  strives  to  protect 
her  labor  against  the  vastly  better  paid  labor  of  England. 
Among  all  fully  settled  countries,  the  rule,  without  exception 
so  far  as  I  am  aware,  is  that  that  country  in  which  the  higher 
wages  are  paid  offers  its  products  at  lower  prices  than  the 

*  "  If  it  be  asserted  that  states  which  pursue  different  industries  can  not 
afford  to  trade  freely  with  one  another,  here  we  have  them,  New  York 
and  Pennsylvania,  Massachusetts  and  Minnesota,  Maine  and  Louisiana. 
If  it  be  asserted  that  states  with  like  industries  can  not  afford  to  trade 
freely  with  one  another,  here  we  have  them,  Indiana  and  Illinois,  Iowa 
and  Minnesota,  Massachusetts  and  Rhode  Island,  Alabama  and  Mississippi. 
If  it  be  said  that  small  states  can  not  afford  to  trade  freely  with  great 
empires,  here  are  New  York  and  Connecticut, Pennsylvania  and  Delaware. 
Why  do  not  the  great  states  suck  the  life  out  of  the  small  ones  ?  If  it  be 
said  that  new  states,  with  little  capital,  and  on  the  first  stage  of  culture, 
can  not  afford  to  exchange  freely  with  old  states  having  large  capital  and 
advanced  social  organization,  here  are  New  York  and  Oregon,  Massachu- 
setts and  Idaho.  How  can  any  territories  ever  grow  into  states  under 
the  pressure  ?  If  it  be  said  that  a  state  which  relies  on  one  industry  can 
not  afford  to  exchange  freely  with  one  which  has  a  diversified  industry, 
here  are  Pennsylvania  and  Colorado,  California  and  Nevada,  any  of  the 
cotton  states  and  any  of  the  Northeastern  states."  —  W.  O.  Simmer. 
"  Protection  in  the  United  States." 


512  POLITICAL  ECONOMY. 

competing  products  of  countries  where  the  lower  wages  are 
paid. 

In  the  United  States,  however,  the  argument  for  protection 
Las  based  itself  on  the  assumed  necessity  of  protecting  the 
strong  against  the  weak.  In  Australia  and  Canada  it  is  the 
same.  It  is  alleged  to  be  essential  to  the  maintenance  of  the 
high  wages  prevailing  in  these  countries,  that  the  products  of 
the  "  pauper  labor  of  Europe  "  shall  not  be  sold  freely  in 
their  markets. 

Why  is  it  that  the  plea  of  those  who  desire  to  check  the 
extension  of  the  division  of  labor  on  the  lines  of  nationality, 
suddenly  changes  as  they  pass  from  old  and  fully  settled 
countries,  to  countries  but  recently,  and  perhaps  still  but  par- 
tially, occupied  and  cultivated  ? 

618.  Why  Wages  are  High  in  New  Countries. — The   ex 
planation  is  found  in  the  fact  that  the  populations  of  what 
we  call  "  new  countries,"  that  is,  countries  where  an  inade- 
quate  population   is   applying   progressively   to  fresh   fields 
advanced  methods  and  machinery,  possess  an  immense  advant- 
age in  the  conditions  of  living  over  the  populations  of  "  old 
countries,"  where  the  land  has  long  been  fully  occupied,  where 
the  capabilities  of  the  soil,  even  on  fields  of  small  natural  pro- 
ductiveness, are  heavily  taxed   to  furnish  subsistence  to   the 
inhabitants,  and  where  systematic,  continuous  manuring  has 
to  be  practiced  in  order  to  keep  the  land  in  condition. 

The  enomous  profit  of  cultivating  a  virgin  soil  without  the 
need  of  artificial  fertilization,  and  the  abundance  of  food  and 
other  necessaries  of  life  enjoyed  by  the  agricultural  class  have 
tended  continually  to  disparage  mechanical  industries  in  the 
eyes  alike  of  the  American  capitalist  and  of  the  American 
laborer. 

619.  The  Competition  of  the  Farm  with  the  Shop.— It  has 
been  the  competition  of  the  farm  with  the  shop  which  has, 
from  the  first,  most  effectually  retarded  the  growth 'of  manu- 
factures in  the  United  States.     A  population  which  is  privi- 
leged to  live  upon  a  virgin  soil,  cultivating  only  the  choicest 
fields  and  cropping  these  through  a  succession  of  years  without 
returning  any  thing  to  the  land,  can  live  in  plenty.     If  that 


NATURAL   PROTECTION.  513 

population  possess  the  added  advantage  of  great  skill  in  the 
use  of  tools  and  great  adroitness  in  meeting  the  large  and  the 
little  exigencies  of  the  occupation  and  cultivation  of  the  soil, 
the  fruits  of  agriculture  will  still  further  be  greatly  increased. 
The  dietary  of  an  American  farmer,  cultivating  his  own  land 
with  the  aid  of  his  growing  sons,  would  amaze  a  peasant  from 
any  portion  of  Europe.  An  abundance  of  nutritious  food  is 
and  has  been,  ever  since  the  revolutionary  period,  the  sure 
condition  of  the  life  of  the  agriculturist  in  the  United  States. 
It  was  not  with  our  fathers,  even  in  New  England,  a  struggle 
for  the  necessaries  of  life,  but  for  social  decencies  and  what, 
in  any  old  country,  would  have  been  called  luxuries. 

Now,  the  mode  of  living  on  the  part  of  the  agricultural 
population  has  necessarily  set  a  minimum  standard  of  wages 
for  mechanical  labor.  With  an  abundance  of  cheap  land,  with 
a  population  facile  to  the  last  degree  in  making  change  of 
avocation  and  of  residence,  few  able-bodied  men  are  likely  to 
be  drawn  into  factories  and  shops  on  terms  which  imply  a 
meaner  subsistence  than  that  secured  in  the  cultivation  of  the 
soil. 

62O.  The  Hand  Trades — There  are  certain  classes  of 
mechanical  pursuits,  however,  which,  by  their  nature,  secure 
to  those  who  follow  them  a  minimum  remuneration  fully  up 
to  the  standard  of  the  agricultural  wages  of  the  region.  Such, 
for  instance,  are  the  trades  of  carpenter,  blacksmith  and  mason, 
in  which  the  work  is  of  a  kind  which  can  only  be  done  upon 
the  spot.  The  house  can  not  be  built  abroad  and  imported  for 
the  farmer's  use  ;  the  wagon  must  be  mended  near  the  place 
where  it  broke  down  ;  the  horse  must  be  shod,  the  tools 
sharpened,  by  the  artisans  of  the  neighborhood.  If,  then,  the 
farmer  will  have  such  services  performed,  he  must  admit  those 
who  perform  them  to  share  his  own  abundance  ;  he  must  pay 
wages  or  prices  which  will  attract  men,  and  those,  by  necessity, 
men  exceptionally  intelligent  and  skillful,  into  those  trades. 
Hence  we  find  the  mason,  the  blacksmith,  the  plumber,  the 
carpenter,  the  house  painter,  the  cobbler,  in  every  part  of  the 
United  States,  receiving  wages  which  bear  no  relation  what- 
ever to  the  wages  paid  for  the  same  class  of  services  in  other 


514  POLITICAL  ECONOMY. 

countries,  but  which  stand  in  a  very  exact  relation  to  the 
rewards  of  agricultural  labor  here. 

Nor  has  it  ever  been  found  necessary  to  encourage  or  stimu- 
late these  trades  for  the  good  of  the  country.  What  states- 
man ever  introduced  into  Congress  a  bill  intended  to  increase 
the  number  of  carpenters  or  blacksmiths,  or  to  enhance  their 
wages  ? 

621.  Personal  and   Professional    Service. — But,     again, 
there  are  certain  classes  of  services,  of  a  personal  or  profes- 
sional nature,  which  have  also  secured  for  those  rendering 
them  a  participation  in  the  abundance  enjoyed  by  the  tillers 
of  the  soil  in  the  same  region.     The  remuneration  received  by 
the  members  of  these  classes,   whether  called  the  wages  of 
domestic  servants,  or  the  fees  of  physicians  and  lawyers,  or 
the  salaries  of  schoolmasters  and  clergymen,  or  the  profits  of 
retail  trade,  has  been  out  of  all  relation  to  the  remuneration  of 
similar  services  in  other  countries,  and  has  amounted  to  just 
what  I  have  termed  it,  a  participation  in   the  abundance  en- 
joyed by  the   agricultural  population.     Since  these    services 
could  only  be  performed  upon  the  spot,  the  agriculturists  have 
been  obliged,  if  they  would  have  the  services  rendered,  to  pay 
for  them,  out  of  the  large  surplus  of  their  own  produce,  at 
least  enough  to  make  these  professions  and  avocations  equally 
desirable  with  their  own,  uncertainty  of  result,  loss  of  time  in 
preparation,  expense  of  education  and  training,  healthfulness 
and  agreeableness  of  work,  etc.,  being  taken  into  account;  and, 
since_the  agricultural  classes  have  desired  that  these  services 
should  be  performed,  and  have  been  willing  to  pay  for  them 
on  the  scale  indicated,  there  has  never  been  any  call  for  Con- 
gressional action  to  secure  the  requisite  number  of  lawyers, 
physicians,    clergymen,  schoolmasters,  domestic    servants  or 
retail  tradesmen. 

622.  The  Factory  Industries.— But  now  we  note  that  there 
are  still  other  important  classes  of  services  to  be  rendered, 
respecting  which  the  rule  changes.     The  remuneration  of  the 
persons  rendering  these  services  no  longer  has  reference  to 
the  abundance  of  agricultural  production  in  the  several  sec- 
tions of  the  United  States  ;  is  no  longer  irrespective  of  the 


THE  FACTORY  INDUSl^RIES.  515 

remuneration  of  similar  classes  elsewhere.  These  persons 
are  not,  necessarily,  admitted  to  a  participation  in  the  fruits 
of  American  agriculture. 

The  services  referred  to  are  such  as  can  be  performed  with- 
out respect  to  the  location  of  the  consumer  of  the  product. 
They  are  nearly  identical  with  what  we  call,  in  the  technical 
sense  of  the  term,  manufactures. 

Whenever  the  American  farmer  wants  a  pane  of  .glass  set, 
or  a  pair  of  boots  mended,  or  a  horse  shod,  he  must  pay  some 
one,  his  neighbor,  enough  for  doing  the  job  to  keep  him  in  his 
trade  and  to  keep  him  out  of  agriculture,  in  the  face  of  the 
great  advantages  of  tilling  the  soil  in  New  York,  or  Ohio  or 
Dakota,  or  wherever  else  the  farmer  in  question  may  live  ; 
but  how  much  he  shall  pay  the  man  who  makes  the  pane  of 
glass,  or  the  pair  of  boots,  or  the  set  of  horseshoes,  will  depend 
upon  the  advantages  of  tilling  the  soil,  not  where  he  himself 
lives,  but  where  the  maker  of  the  horseshoes,  the  boots,  or  the 
glass  may  live. 

If  he  will  have  the  work  done  he  must  pay  some  one,  some- 
where, enough  to  keep  him  in  his  trade  and  out  of  agriculture  ; 
but  not  necessarily  out  of  New  York  agriculture,  or  Ohio 
agriculture,  or  Dakota  agriculture  ;  but,  perhaps,  out  of  Eng- 
lish agriculture,  or  French  agriculture,  or  Norwegian  agricul- 
ture, under  the  the  requirements  of  constant  fertilization,  deep 
plowing  and  thorough  drainage,  and  subject  to  that  stringent 
necessity  which  economists  express  by  the  term,  "  the  law  of 
Diminishing  Returns." 

Now,  to  offset  and  overcome  the  inducements  to  engage  in 
agriculture,  even  in  Merry  England,  is  a  different  thing,  a  very 
different  thing,  from  keeping  a  man  in  his  trade  and  out  of 
agriculture  in  the  United  States. 

The  American  agriculturist,  having  large  quantities  of 
grain  and  meat,  of  cotton  and  tobacco,  left  on  his  hands,  after 
providing  ample  subsistence  for  his  family,  and  even  after 
hiring  the  carpenter,  mason  and  blacksmith,  the  schoolmas- 
ter, lawyer  and  doctor,  for  as  much  time  as  he  requires 
their  respective  services,  and  still  further,  after  putting  a  good 
deal  into  farm  implements  and  increase  of  stock,  is  desirous  of 


516  POLITICAL    ECONOMY. 

obtaining  with  the  remainder  sundry  articles  more  or  less  nec- 
essary to  health,  comfort  and  decency.  To  him  it  makes  no 
difference  whether  the  articles  he  requires  are  made  on  one 
side  of  the  Atlantic  or  on  the  other  ;  but  it  makes  a  great  dif- 
ference what  he  is  obliged  to  pay  for  them  ;  how  much  of  his 
surplus  grain  and  meat,  tobacco  and  cotton  must  go  to  secure 
a  certain  definite  satisfaction  of  his  urgent  and  oft-recurring 
wants.  If  he  must  needs  pay  some  one  to  stay  out  of  Ameri- 
can agriculture  and  do  this  work,  his  surplus  will  not  go  so 
far  as  if  he  were  allowed  to  pay  some  one  to  stay  out  of  Eng- 
lish agriculture  to  do  it. 

623.  What  the  State  Can  Do — But  here  the  State  enters 
and  declares  that  it  is  socially  or  politically  necessary  that 
these  articles,  these  nails,  these  horseshoes,  this  cotton  or 
woolen  cloth,  or  what  not,  shall  be  made  on  this  side  of  the 
Atlantic.  That  necessity  the  agriculturist,  as  consumer, 
can  not  be  expected  to  feel  ;  he  does  not  care  where  the  things 
were  made  ;  he  only  wants  them  to  use.  He  does  not  care 
who  makes  them  ;  he  does  not  even  care  whether  they  are 
made  at  all  ;  they  would  answer  his  purpose  just  as  well  were 
they  the  gratuitous  gifts  of  nature,  spontaneous  fruits  of  the 
soil,  or  the  sea,  or  the  sky.  Whatever  his  own  economic 
theories  may  be,  he  will,  as  purchaser,  every  time  select  the 
cheapest  article  which  will  precisely  answer  his  need.  He 
will  not,  of  his  own  motion,  pay  more  for  an  article  because  it 
is  made  on  his  side  of  the  Atlantic  than  he  could  get  an 
equally  good  article  for,  bearing  the  brand  of  Sheffield  or  Bir- 
mingham or  Manchester.  But  if  the  State  says  he  must,  he 
must  ;  and  consequently  the  American  maker  of  this  article 
is  by  force  of  law  admitted  to  a  participation  in  the  abund- 
ance enjoyed  by  the  American  agricultural  class.  The  tiller 
of  the  soil  is  now  compelled,  by  the  ordinance  of  the  State,  to 
share  his  bread  and  meat  with  the  maker  of  nails  or  of  horse- 
shoes, of  cotton  or  of  woolen  cloth,  just  as  he  was  before  com- 
pelled by  the  ordinance  of  Nature  to  share  his  bread  and  meat 
with  the  blacksmith,  carpenter  and  mason,  the  schoolmaster, 
lawyer  and  doctor. 

It  is  perfectly  true,  therefore,  as  the  protectionist  asserts, 


SOCIALISM.  517 

that  a  tariff  of  customs  duties  upon  foreign  goods  imported 
into  new  countries  tends  to  create  and  maintain  high  rates  of 
wages  in  the  facto^  industries.  But  for  protective  duties, 
those  articles  which,  in  their  nature,  can  be  readily  and 
cheaply  transported  will  be  produced  predominantly  in  coun- 
tries where  the  minimum  standard  of  mechanical  wages  is  set 
by  agricultural  conditions  far  less  favorable  than  those  which 
obtain  in  the  United  States,  in  Canada,  or  in  Australia. 

But  while  the  law  thus  can  and  does  create  high  rates  of 
wages  in  factory  industries,  it  does  not  and  it  can  not  create 
the  wealth  out  of  which  that  excess  of  manufacturing  wages 
over  those  of  older  countries  is  paid.  That  wealth  is  created 
by  the  labor  and  capital  employed  in  the  cultivation  of  the 
soil. 

xvm. 

SOCIALISM. 

624.  Difficulty    of     Defining    Socialism. — It  is  not  easy 
to  define  the  word  socialism,  for  the  purposes  either  of  con- 
troversy or  of  description.     It  is,  perhaps,  impossible  to  give 
a  definition  which  shall  be  satisfactory  to  all.     One  man  invid- 
iously calls  another  a  socialist,  only  to  receive  the  same  ap- 
pellation himself  from  a  third  person  differing  from  him  in 
political  opinion.     Let  us,  however,  do  the  best  we  can,  in  the 
confusion   which  prevails    on  this   subject,   to    characterize 
socialism. 

We  find  that  term  applied  to  "a  great  variety  of  political 
schemes,  in  all  of  which  is  present  one  quality,  in  higher  or 
lower  degree.  This  quality  is  the  essence  of  socialism;  and, 
as  it  is  found  more  and  more  fully  developed,  the  socialist 
character  of  any  political  scheme  becomes  more  and  more  dis- 
tinctly pronounced.  We  may  apply  the  term,  socialistic,  to 
this  quality. 

625.  Meaning  of  the  Word  Socialistic.— What  then  does 
the  word  socialistic  signify  ?  I  answer,  it  is  properly  applied 
to  an  unconscious  tendency  or  a  conscious  purpose  to  extend 


518  POLITICAL    ECONOMY. 

the  powers  of  the  state  beyond  a  certain  necessary,  minimum, 
line  of  duties,  for  a  supposed  public  good,  under  popular  im- 
pulse. It  may  be  added,  though  rather  in  explanation  than 
in  qualification  of  our  definition,  that  the  supposed  public 
good  in  view  generally  involves  a  greater  or  a  smaller  change 
in  the  distribution  of  wealth,  as  effected  under  the  rule  of 
competition  and  individual  initiative.  This,  however,  is  not 
always  the  case. 

626.  Anarchism. — We  have  spoken  of  extending  the  powers 
of  government  beyond  a  necessary,  minimum,  line  of  duties. 
What  is  that  line  ?  On  this  question  opinions  differ,  but  I 
deem  it  conducive  to  a  clear  understanding  of  our  subject  to 
conceive  that  line  as  drawn  along  the  Police  Powers  of  the 
state.  Those,  indeed,  who  call  themselves  Anarchists  hold 
that  government  is  not  a  necessary  means  of  social  existence  ; 
but  that,  on  the  contrary,  government  produces  most  of  the 
very  evils  which  are  made  the  excuse  for  government.  They 
profess  to  believe  that  government  represses  individual  activi- 
ties for  good,  at  many  points,  and  paralyzes  forces  which 
otherwise  would  continually  operate  to  ameliorate  the  condi- 
tions of  life,  to  harmonize  social  relations,  and  to  give  inspir- 
ation and  impulse  to  human  efforts  seeking  at  once  the  good 
of  the  individual  and  of  the  community.  The  Anarchist  even 
asserts  that  certain  vicious  and  destructive  appetites  and 
passions,  which  have  been  held  to  be  inherent  in  human  nature 
and  to  place  the  necessity  of  government  beyond  the  possi- 
ibility  of  question,  are,  in  fact,  generated  by  government 
itself,  and  would  soon  disappear  in  a  state  where  no  man  pre- 
sumed to  make  a  law  for  another  or  to  place  any  restraint 
upon  his  actions.*  Apart,  however,  from  the  small  and  as 
yet  insignificant  body  of  men  known  as  Anarchists,  it  is  held 
by  all  persons,  of  high  or  low  degree,  of  much  or  little  political 
experience,  that  government  is  at  least  a  necessary  evil ;  and 
most  men  cheerfully  submit  to  whatever  restraints  or  sacri- 
fices are  involved  in  its  maintenance.  There  are  certain  f  unc- 

*  The  reader  who  may  be  interested  to  see  the  most  and  best  that  can 
be  said  in  behalf  of  this  strange  doctrine  of  anarchy,  is  referred  to  an 
article  by  Prince  Kropotkin  in  the  Nineteenth  Century  for  August,  1887 


SO  CIA  LIS  TIC  MEA  S  UKES.  5  1 9 

tions  known  as  the  police  powers,  which  are,  with  substantial 
unanimity,  admitted  to  belong  to  government.  These  are, 
speaking  in  a  very  general  way,  the  protection  of  life,  person 
and  property  and  the  preservation  of  the  civil  peace.  These 
powers  clearly  embrace  the  repression  of  obtrusive  vice  and 
the  protection  of  the  common  air  and  the  common  water  from 
pollution.  The  term  socialistic  can  not  be  properly  applied  to 
any  measui-e  undertaken,  in  good  faith,  for  the  attainment 
of  these  objects.  In  a  highly  organized  industrial  or  social 
state,  the  police  powers  will  naturally  be  exercised  through 
agencies  and  instrumentalities  unknown  in  a  more  primitive 
condition  ;  but  these  are  not,  on  that  account,  to  be  considered 
in  any  degree  socialistic,  so  long  as  they  are  directed  toward 
the  end  indicated. 

627.  Examples  of  Socialistic  Measures. — Whenever  and 
wherever,  for  any  supposed  public  good,  measures  are  under- 
taken or  proposed,  from  a  popular  impulse,  or  in  obedience  to 
a  popular  demand,  which  carry,  or  would  carry,  the  functions 
of  government  beyond  the  line  we  have  drawn,  the  term  social- 
istic is  properly  to  be  used,  not  as  a  term  of  reproach  or  con- 
tumely, but  as  a  strictly  descriptive  title.  The  line  of  the 
police  powers  may,  in  any  given  instance,  be  transcended  by 
much  or  by  little;  the  object  sought  may  be  thoroughly  prac- 
ticable or  wildly  fanciful;  the  results  may  be  highly  beneficial 
or  deeply  injurious  to  society;  but  every  measure  or  proposal 
of  the  nature  we  have  described  is  socialistic.  Thus,  public 
schools  are  distinctly  socialistic.  Education  is  a  matter 
proper  to  individual  initiative  and  enterprise,  within  the  family 
or,  by  voluntary  association,  within  larger  groups.  It  is 
only  during  the  last  twenty  years  that  this  function  has  been 
assumed  by  government  in  a  country  so  free,  prosperous  and 
enlightened  as  England.  When  this  great  step  was  taken 
it  was  distinctly  and  unmistakably  socialistic,  yet  not  the  less 
meritorious  and  beneficial.  That  step  had  been  taken,  gener- 
ations before,  in  the  United  States,  with  the  consent  of  all 
parties  and  all  classes,  and  with  the  happiest  results  in  peace, 
order  and  prosperity.  On  the  other  hand,  the  government  in 
England  owns  and  operates  the  telegraph,  a  policy  from  which 


520  POLITICAL    ECONOMY. 

we  in  the  United  States  shrink  with  reluctance  as  dangerously 
socialistic. 

628.  Public    roads  and   bridges    also  exhibit   the   social- 
istic character  in  a  highly  marked  degree.  In  a  very  primitive 
state  of  society,  where,  yet,  all  the  police  powers   are  fully 
exercised,  each  man  looks  out  for  his  own  paths  of  travel  or 
transport,  and  maintains  his  own  communications  with  friends 
and  neighbors,   across   the  commons  or  through  the  forest. 
Even  after  roads  are    laid  out,  and,  later  still,  are  graded^ 
drained  and  perhaps  paved,  at  great  expense,  and  streams  and 
ravines  are  bridged,  this  work  continues   to  be  regarded  as 
altogether    a   matter   for  private  enterprise.     Individuals  or 
associations  lay  out  the  roads  and  build  the  bridges,  collecting 
toll  from  every  one  who  passes  over  them.     Those  who   use 
the  roads  much  pay  much;  those  who  use  them  little  pay  little; 
those  who  stay  at  home  pay  nothing  at  all.  At  last*  there  comes 
a  time  when  it  is  seen  that,  though  this  function  naturally 
belongs  to  individuals,  and  has  indeed  been  exercised  by  in- 
dividuals with  a  reasonable  degree  of  success,  yet  a  great 
public  advantage  will  result  from  making  these  avenues  of 
communication  free  to  all  and  supporting  them  thereafter  at 
the  public  expense.     The  step  thus   taken  is   purely,  highly 
socialistic.     The    responsibility,  the   labor,    the   expenditure 
involved  in  these  undertakings  pass  from  private  citizens  to 
public  officials.     Individuals  no  longer  pay  for   this  service 
according  to  the  proportion  in  which  they  enjoy  it.     Each 
contributes,  whether  he  will  or  not,  to  the  construction  and 
maintenance  of  roads  and  bridges,  which  he  may  use  much  or 
may  not  use  at  all. 

629.  Protectionism   is   purely  and  highly  socialistic.     Its 
purpose  is  so  to  operate  upon  individual  choices  and  aims,  so 
to  influence  private  enterprise  and  the  investments  of  capital, 
as  to  secure  the  building  up,  within  the  country  concerned,  of 
certain  branches  of  production  which  could  not  be  carried  on, 


*  The  general  movement  by  which  roads  and  bridges  have  almost  uni 
versally  been  made  free,  began,  even  in  the  most  enlightened  countries, 
only  sixty  or  seventy  years  ago. 


THE   SOCIALISTS.  521 

or  would  grow  but  slowly,  under  the  rule  of  competition  and 
individual  initiative.  With  this  object  in  view,  government 
begins  by  preventing  the  citizen  from  buying  where  he  can 
buy  cheapest  ;  it  compels  him  to  pay  ten,  thirty  or  fifty  per 
cent,  advance,  it  may  be,  upon  the  prices  at  which  he  could 
otherwise  purchase  ;  it  even  assumes  the  right  to  make  exist- 
ing industries  support  the  industries  which  are  thus  to  be  called 
into  being.  Not  incidentally,  but  primarily  and  of  purpose, 
it  affects  vitally  every  man's  industrial  conditions  and 
relations.  It  does  this  for  a  supposed  public  good. 

63O.  The  Socialists.— We  have,  perhaps,  sufficiently  illus- 
trated the  significance  of  the  word  socialistic.  What  then  is 
socialism  ?  Perhaps  we  had  better  first  ask,  who  is  a 
socialist  ?  Under  our  definition,  the  advocacy  of  a  socialistic 
act  or  measure  will  not  necessarily  characterize  a  socialist^ 
Thus,  protection,  as  we  have  said,  is  socialistic.  Yet  the  pro- 
tectionist is  not,  as  such,  a  socialist.  Most  protectionists  are  not 
socialists.  Many  protectionists  are,  in  their  general  views,  as 
strongly  anti-socialist  as  men  can  well  be. 

The  socialist  is  one  who,  in  general,  distrusts  the  effects  of 
individual  initiative  and  enterprise  ;  who  is  readily  convinced 
of  the  necessity  or  utility  of  the  assumption,  by  the  State,  of 
functions  which  have  hitherto  been  left  to  personal  choices 
and  personal  aims  ;  and  who,  in  fact,  approves  and  advocates 
many  and  large  schemes  of  this  character. 

The  person  of  whom  all  this  could  be  said  might  properly 
be  called  a  socialist  ;  yet  there  are  many  such  persons  who 
would  wish,  after  enlarging  the  powers  of  government  at 
many  points,  correcting,  as  they  conceive  it,  many  of  the 
infirmities  and  evil  liabilities  of  society  by  force  of  law,  and 
introducing  incentives  and  impulses  which,  as  they  believe, 
can  only  be  administered  by  the  organized  power  of  the  State, 
still  to  leave  individual  initiative  and  enterprise  the  general 
rule  of  life.  The  extreme  socialist  is  he  who  would  make  the 
State  all  in  all  :  private  enterprise,  personal  choices  and  aims 
being  lost  in  the  general  movement  of  a  society  dominated 
and  directed  by  a  majority  vote.  In  the  view  of  the  extreme 
socialist,  the  powers  and  the  rights  of  the  State  are  the  sum 


522  POLITICAL    ECONOMY. 

of  all  the  powers  and  all  the  rights  of  the  individuals  who 
compose  it ;  and  government  becomes  the  organ  of  society  in 
respect  to  all  its  interests  and  all  its  acts. 

631.  Socialism. — The  term  "  socialism  "  may,  then,  prop- 
erly be  applied    (1)    to  the  aggregate  of    many    and  large 
schemes  for  the  extension  of  the  powers  of  the  State,  actually 
urged  for  present  or  early  adoption  ;  or  (2)   to  a  programme 
contemplated,  at  whatever  distance,  for  the  gradual  replace- 
ment of  private  by  public  activity  ;  or   (3)  to  an  observed 
movement  or  tendency  of  a  highly  marked  character  in    the 
direction  indicated. 

It  will  be  seen  that  socialism  and  anarchism  are  in  theory 
absolutely  antipodal.  The  former  would  proceed  by  mag- 
nifying the"  powers  of  the  State  and  enlarging  the  sphere 
of  its  operation,  until  personal  choices  and  aims  should 
wholly  disappear  in  respect  to  all  matters  in  which  others, 
or  the  community  as  a  whole,  could  possibly  be  interested. 
The  complete  establishment  of  socialism  would,  therefore, 
involve  a  tyranny  more  far-reaching  and  searching  than 
that  of  the  most  absolute  despotism  ever  founded  among 
men.  Anarchism,  on  the  contrary,  aims  at  the  complete 
abolition  of  government:  the  removal  of  every  form  of 
restraint,  leaving  personal  aims  and  choices  wholly  unchecked 
by  law  or  authority,  subject  only  to  moral  influences,  to 
persuasion  and  to  the  force  of  public  sentiment. 

632.  Socialism  vs.  Communism. — The  distinction  between 
Socialism  and  Communism  is  not  to  be  drawn  so  easily.     The 
two  schemes  have,  necessarily,  much  in  common ;  while  the 
boundaries  of  that  which,  theoretically,  each  has  to  itself 
have  been  much  confused  by  vague  or  passionate  treatment. 
In  a  previous  publication,*  I  have  sought  to  express  as  clearly 
as  the  nature  of  the  case  would  allow,  the  essential  differences 
between  Socialism  and  Communism,  as  follows  : 

1st.  Communism  confines  itself  mainly,  if  not  exclusively, 
to  the  one  subject  matter — wealth.  On  the  other  hand, 
•  Socialism,  conspicuously,  in  all  its  manifestations,  in  all  lands 

*  Scribner's  Magazine.     January,  1887. 


SOCIALISM  VS.    COMMUNISM.  523 

where  it  has  appeared,  asserts  its  claim  to  control  every  inter- 
est of  human  society,  to  enlist  for  its  purposes  every  form  oi 
energy. 

2nd.  So  far  as  wealth  becomes  the  subject  matter  both  of 
Communism,  on  the  one  hand,  and  of  Socialism,  on  the  other, 
we  note  a  difference  of  treatment.  Communism,  in  general, 
regards  wealth  as  produced,  and  confines  itself  to  effecting  an 
equal,  or  what  it  esteems  an  equitable  distribution. 

Socialism,  on  the  other  hand,  gives  its  first  and  chief  atten- 
tion to  the  production  of  wealth  ;  and,  passing  lightly  over 
the  questions  of  distribution,  with  or  without  assent  to  the 
doctrine  of  an  equal  division  among  producers,  it  asserts 
the  right  to  inquire  into  and  control  the  consumption  of  wealth 
for  the  general  good,  whether  through  sumptuary  laws  and 
regulations,  or  through  taxation  for  public  expenditure. 

3rd.  Communism  is  essentially  negative,  confined  to  the 
prohibition  that  one  shall  not  have  more  than  another. 
Socialism  is  positive  and  aggressive,  declaring  that  each  man 
shall  have  enough.  It  purposes  to  introduce  new  forces  into 
society  and  industry,  to  put  a  stop  to  the  idleness,  the  waste 
of  resources,  the  misdirection  of  force,  inseparable,  in  some 
lai'ge  proportion  of  instances,  from  individual  initiative  ;  and 
to  drive  the  whole  mass  forward  in  the  direction  determined 
by  the  intelligence  of  its  better  half. 

4th.  While  communism  might  conceivably  be  established 
upon  the  largest  scale,  and  has,  in  a  hundred  experiments, 
been  upon  a  small  scale  established,  by  voluntary  consent, 
Socialism  begins  with  the  use  of  the  powers  of  the  State,  and 
proceeds  and  operates  through  them  alone.  It  is  by  the  force 
of  law  that  the  Socialist  purposes  to  whip  up  the  laggards 
and  the  delinquents  in  the  social  and  industrial  order.  It  is 
by  the  public  treasurer,  armed  with  powers  of  assessment  and 
sale,  that  he  plans  to  gather  the  means  for  carrying  on  enter- 
prises to  which  individual  resources  would  be  inadequate. 
It  is  through  penalties  that  he  would  check  wasteful  or  mis- 
chievous expenditures. 

If  what  has  been  said  above  would  be  found  true,  were  one 
studying  Communism  and  Socialism  as  a  philosophical  critic, 


524  POLITICAL    ECONOMY. 

much  more  important  will  be  the  distinction  between  them  to 
the  eyes  of  the  politician  or  the  statesman.  Communism  is, 
if  not  moribund,  at  the  best  everywhere  at  a  stand-still,  gen- 
erally on  the  wane  ;  nor  does  it  show  any  sign  of  returning 
vitality.  On  the  other  hand,  Socialism  was  never  more  full 
of  lusty  vigor,  more  rich  in  the  promise  of  things  to  come, 
than  now. 

633.  It  seems  only  needful  to  add,  that,  while  the  doctrines 
of  Anarchism,  Socialism  and  Communism  are  respectively 
held  by  not  a  few  sincere  and  disinterested  men,  of  a  high 
order  of  intelligence,  large  numbers  of  those  who  embrace 
one  or  the  other  of  these  systems  do  so  with  no  appreciation 
of  the  differences  between  them,  being  influenced  wholly  by 
a  general  discontent  with  the  results  of  the  existing  social 
and  industrial  order,  either  as  affecting  themselves  or  as  con- 
trolling the  fortunes  of  their  class.  In  addition  to  these, 
every  public  demonstration  of  socialistic  or  communistic  or- 
ganizations almost  inevitably  draws  out  a  swarm  of  "  lewd 
fellows  of  the  baser  sort,"  who  for  the  time  attach  themselves 
to  that  party,  out  of  a  general  hatred  of  law  and  order,  or  in 
the  hope  of  plunder,  or  from  a  delight  in  riot  and  mischieL 


INDEX. 

t^°  THE  REFERENCES  ARE  TO  SECTIONS,  NOT  TO  PAGES. 


'Argyle,  Duke  of  :  restrictions  on 
the  contract  for  labor,  248 

Anarchism,  626 

Arithmetical  vs.  Geometrical  pro- 
gression, 392-3 

Art :  Political  Economy  as  an  art 
(a  branch  of  statesmanship)  dis- 
tinguished from  political  econ- 
omy as  a  science,  27-31 

Assignats,  so  called,  of  French  Re- 
volutionary period,  219,  445 

Athens,  progressive  taxation  in,  600 

Austria,  paper  money,  443 

Authority,  legal,  excluded  from 
our  definition  of  value,  8 

Ability,  as  the  rule  of  taxation, 
595-7,  [See,  also,  Faculty] 

Abstinence,  the  creator  of  capital, 
87-93 ;  interest,  the  reward  of 
abstinence,  288 

Accumulation,  how  influenced  by 
the  rate  of  interest,  288 

Agriculture — deemed  by  the  phy- 
siocrats the  sole  source  of  wealth, 
48 ;  subject  to  the  condition  of 
"diminishing  returns,"  49-53; 
plea  that  manufactures  should 
be  built  up  artificially  to  save 
exportation  of  the  properties  of 
the  soil,  56-9 ;  follows  the  pas- 
toral condition  in  natural  order 
of  development,  63 ;  the  fluctua- 
tions in  agricultural  products 
render  them  a  defective  standard 
for  deferred  payments,  188-90 ; 
competition  of  agriculture  with 
manufactures  in  new  countries, 
618-23 

Alcoholic  beverages,  English  ex- 
penditure upon,  406n 

Alison,  Sir  A.;  the  potato,  404n 

Amsterdam,  Bank  of,  523 

Andersen,  J.,  announces  law  of 
rent,  265 


Babbage,  Charles  :  cost  of  the  ma- 
terials of  the  iron  manufactures, 
53 

Bacon,  Lord :  the  true  labor  of 
philosophy,  24 ;  the  burden  of 
taxation,  414;  on  usury,  419,  423n 

Bagehot,  Walter :  influence  of  in- 
convertible paper  money  on  for- 
eign exchanges,  220,  565  ;  the 
early  Italian  banks,  522 ;  bi- 
metallism, 568 

Balance  of  Trade,  545-53 

Banking  Functions,  the,  522-8;  the 
banking  agencies,  529  ;  the  State 
participating  in  the  profits  of 
banking,  577 

Banking  principle,  the,  so-called, 
vs.  the  currency  principle,  225-6 

Bank  Money,  Chap.  6,  Part  III 

Bank  of  England,  222,  225  ;  its 
foundation,  522 

Bases,  of  Taxation,  590 

Bastiat,  F. :  confuses  ethical  and 
economical  reasoning,  37 ;  the 
economical  harmonies,  346 ;  the 
story  of  Jacques  Bonhomme, 
412 

Barter,  the  primitive  form  of  ex- 
change, 161-2 

Beaulieu,  Leroy,  domains,  576n 

Belgium,  underfed  laborers,  68 

Bentham,  Jeremy:  escheat  vice  tax- 
ation, 573 ;  approves  banking 
monopolies,  578 ;  attacks  judi- 
cial fees,  581 

Bequest,  [See  Successions] 

Bi-Metallism,  559-71 

Birth-rate,  diminished  by  increase 
of  economic  desires,  397-401 

Bowen,  Francis:  the  value  denomi- 
nator, 183n 

Brabazon,  Lord :  inadequate  food 
of  French  factory  hands,  68 

Brassage,  196 


526 


INDEX. 


Brassey,  Thomas,  Sir  :  superiority 
of  English  labor  in  railway  con- 
struction, 79 

Brodie,  George :  sale  of  offices  by 
Charles  I.,  575n ;  monopolies, 
578 

Building  lots,  rent  of,  280 

Bullion,  its  relation  to  coin,  193- 
200,  [See  Seigniorage] 

Burke,  Edmund :  nothing  so  great 
an  enemy  to  accuracy  of  judg- 
ment as  want  of  classification 
and  distribution,  44  ;  the  fiscal 
motive  to  paper  money  issues, 
444 

Cairnes,  John  E. :  The  character 
and  logical  method  of  Political 
Economy,  18-20 ;  asserts  for  it 
the  dignity  of  a  science,  25 ;  im- 
portance of  the  law  of  ' '  diminish- 
ing returns,"  48  ;  the  friction  of 
retail  trade,  149  ;  relief  of  over- 
crowded occupations,  342  ;  in- 
difference of  the  rate  of  profits, 
373  ;  laissezfaire,  613;  co-opera- 
tion, 428  ;  bi-metallism,  568 

Calvin,  John,  on  usury,  418 

Cameralistic  science,  its  subject 
matter,  359 

Canard,  N.  F.:  the  diffusion  of 
taxes,  608 

Cancellation  of  indebtedness,  by 
banks  and  clearing  houses,  524 

Capability,  productive,  of  a  com- 
munity, Chap.  4,  Part  II 

Capital,  Chap.  3,  Part  II ;  partial 
immobility  of  capital,  104 ;  the 
remuneration  for  its  use,  i.  e., 
interest,  Chap.  3,  Part  IV. ;  rela- 
tion of  capital  to  the  scheme  of 
co-operation,  426-8 ;  relation  of 
capital  to  wages,  320,334-6  [With 
reference  to  taxation,  see  Wealth] 

Carey,  H.  C. :  his  attacks  upon  the 
doctrine  of  rent,  484-92 

Catallactics,  the  word  offered  by 
Archbishop  Whately,  as  a  sub- 
stitute for  political  economy,  43 

Celibacy,  [See  Marriage] 

Chadwick ,  Edwin :  the  cellar  popu- 
lations of  the  English  cities,  71 

Charles  I. ,  of  England  ;  sale  of 
offices,  575  ;  of  monopolies,  678 

Chastity,  female,  how  affected  by 
the  provisions  of  the  English  poor 
laws,  450 


Cheap  vs.  Dear  Food,  404 

Cheap  money,  is  inconvertible 
paper  money  cheap  ?  214-6 

Cheerfulness,  as  contributing  to 
labor  power,  76-8 

Cherbuliez,  A.  E. :  domains,  576 

Chevalier,  Michel  ;  money  econo- 
mizes labor,  164 ;  applies  the 
term  Brassage  to  the  actual  cost 
of  coinage,  196n  ;  industrial  ef- 
fects of  an  increase  of  the  money 
supply,  445n  ;  bi-metallism,  568 

Child,  the,  its  relation  to  the  sub- 
sistence of  the  family,  387-8 

Civilization  tends  to  diminish  the 
sum  of  values,  12 ;  effects  of 
money  in  promoting  civilization, 
164 

Clamageran,  J.  J. :  the  physio- 
cratic  theory  of  taxation,  583n 

Clearing-house,  the  bankers'  bank, 
524 

Climate :  a  good  climate  is  not 
capital  but  a  favorable  condition 
of  production,  86 

Clothing,  its  relation  to  subsistence, 
384 

Cobden,  Richard :  the  commuta- 
tion of  the  feudal  burdens  upon 
land  in  England,  500 

Coinage,  168,179-80;  cost  of ,  i.  e., 
seigniorage,  Chap.  4,  Part  III 

Coin  basis  of  bank  money,  [See 
Reserve,  Specie] 

Coin,  debasement  of  ;  seigniorage, 
Chapter  4,  Part  III 

Combination,  in  economics  op- 
posed to  competition,  129 

Comfort,  ideas  of,  developed  in 
the  progress  of  society,  19,  395-9 

Commerce,  the  old  time  theory 
that  it  could  be  beneficial  to  but 
one  party,  3  [See  also  Exchange 
and  International  Trade] 

Commodities,  distinguished  from 
services,  247-9 

Communism,  632 

Community  of  goods,  what  would 
become  of  wealth  ?  11 

Competition  defined,  129  ;  relation 
of  competition  to  the  doctrine 
of  rent,  268-76  ;  relation  of  com- 
petition to  the  doctrine  of  inter- 
est, 298 ;  to  the  doctrine  of 
wMiTf-s,  Chap.  6,  Part  IV,  also 
465-73 


INDEX. 


527 


Comte,  Aug.:  denies  to  political 
economy  the  character  of  a 
science,  25-6 

Consumers  and  producers,  possi- 
ble misunderstandings  between. 
Chap.  1,  Part  III 

Consumption  of  wealth:  Prof.  Les- 
lie holds  that  the  neglect  of  this 
department  of  inquiry  is  due  to 
the  assumption  of  a  beneficent 
order  of  nature,  35  ;  consump- 
tion as  a  department  of  political 
economy,  381-2,  Part  V,  passim 

Consumptive  vs.  productive  co- 
operation, 432-3 

Continental  currency,  so-called,  of 
the  American  revolution.  207, 
209,  219 

Contributions  to  the  treasury  of 
the  State,  572  ;  (compulsory:  see 
Revenue  of  the  State  and  Tax- 
ation) 

Co-operation  :  an  effort  to  get  rid 
of  the  entrepreneur,  108;  erro- 
neous conceptions  of  many  econ- 
omists, 316-7,  426-8 ;  anticipated 
benefits  of,  429-3 1  ;  practical 
difficulties,  432-6 

Corn  rents,  188-90 

"  Corn  Laws"  (English),  83 

Corners,  so-called,  as  a  tool  of  the 
speculating  class,  140,  364 

Courcelle-Seneuil,  J.  G.:  deprecia- 
tion not  a  necessary  result  of  in- 
convertibility, 21 3n  ;  the  theory 
of  bank  money,  224 

Creasy,  Sir  Edward,  the  feudal 
burdens  on  land,  498 

Credit  sales,  the  characteristic,  186; 
their  great  importance  in  modern 
exchange,  187 ;  the  multiple 
standard  of  deferred  payments, 
459-64 

Crises,  [See  Panics] 

Cultivation,  descending  to  inferior 
soils,  [See  Diminishing  Returns] 

Currency  principle,  the  so-called 
vs.  the  banking  principle,  224-6 

Custom,  its  influence  in  modifying 
law  or  com  petition,  19;  is  always, 
in  theory,  opposed  to  competi- 
tion, 129  ;  its  effects  on  price, 
145-6 

Darwin,  Charles :  the  power  of 
geometrical  increase,  393 

Dear  vs.  Cheap  Food,  404 


Debasement  of  the  coin,  Chan  3 

Part  III 
Debtor    class,    their    demand    for 

paper  money  issues,  445 
Decency,   ideas  of,   developed  in 
the     progress    of    society,    19 ; 
power  to  check  population,  394, 
400-1 
Deferred  payments,  standard  for, 

[See  Standard,  etc.] 
Definitions,  in  economics,  not  less 
valuable  because  certain  objects 
may  fall  across  the  lines  of  de- 
markation,  6  ;  difficulty  which 
political  economy  encounters 
from  the  use  of  terms  taken  from 
common  speech,  42-3 
Degradation  of  the  laboring  class, 
through  unequal  competition. 
339-47,  466 

Demand  and  supply,  defined,  125  ; 
desire  is  not  demand,  126  ;  ope- 
ration of  demand  and  supply  il- 
lustrated, 125-40  ;  (Money),  170 
Demand,   international,   equation, 

of,  153 
Denominator  of  value,  182-3;  how 

about  paper  money  ?  210 
Departments,  the  four  departments 
of    political  economy,   44 ;  rea- 
sons   for    their    retention,   111, 
247-9 

Deposits,  fictitious,  as  a  means  of 
evading  usury  laws,  422    [See 
Safe  Deposit] 
Deposit  and  discount,   the    great 

banking  function,  526 
Depreciation,  not  a  necessary  re- 
sult of  debasement  of  coin,  197, 
201 ;    or  of    inconvertibility  of 
paper,  213 
DeQuincey,  Thomas:  "  Profits  are 

the  leavings  of  wages,"  327 
Desire  is  not  demand,  126 
Desires,  economic,  tend  to  multi- 
ply as  fast  as  gratuity  replaces 
value    in   the    case    of    articles 
which  were  the  subject  of  for- 
mer desires,  134,  63,  66-7,  92-3, 
Chap.  2  and  3,  Part  V 
Destruction    of   wealth,    keeping 
down  accumulations  of  capital, 
110 ;    popular    notion    that    it 
stimulates  production,  411-3 
Deterioration,  liability  to,  as  affect- 
ing price,  143 


528 


INDEX. 


Devon,  Earl :  Irish  Commission  of, 
1844,  394 

Diet,  diversified,  taste  for,  as  an- 
tagonizing the  procreative  force, 
398 

Difference,  economic,  what  con- 
stitutes an  economic  difference  ? 
133 

Diffusion  of  taxes,  606-10 

Diminishing  returns  in  agricul- 
ture, 51-4,  257 

Discipline  creates  no  force.but  may 
prevent  waste,  348-51 

Discount  and  deposit,  the  great 
banking  function,  526 

Discredit  of  money,  its  influence 
on  the  money  demand,  200-1 

Distribution,  as  a  department  in 
political  economy,  Chap.  1,  Part 
IV 

Division  of  Labor  [See,  also,  Ter- 
ritorial Div.  of  Lab.],  how  it 
originates,  80  ;  how  it  becomes 
a  source  of  productive  power, 
81-3  ;  gives  rise  to  exchange,  112; 
evil  possibilities  attendant  upon, 
Chap.  7,  Part  III 

Domains,  as  a  source  of  revenue 
to  the  State,  576 

Douglass,  William :  the  debtor 
class  in  early  Massachusetts,  445 

Dress,  as  a  form  of  consumption, 
384 

Dynamics  of  wealth,  found  in  con- 
sumption, 382 

Economics,  [See  Political  Econ- 
omy] 

Efficiency  of  the  individual  la- 
borer, dependent  on  several 
causes,  65-78  ;  varying  efficiency 
of  labor  in  different  countries, 
79  ;  relation  to  wages,  456 

Emigration  of  capital,  299  ;  of  la- 
bor, 298-9 

Employer,  the,  [See  Entrepre- 
neur] 

Employment,  regularity  of,  as  an 
element  of  wages,  320 

Employed  laborer,    [See  Laborer] 

England,  insufficient  food  of  agri- 
cultural laborers,  68 ;  contrasted 
with  India  and  Russia  as  to  the 
efficiency  of  its  laboring  popula- 
tion, 79 ;  its  industrial  organiza- 
tion, 252  ;  rents  kept  down  by 
public  sentiment,  269  ;  its  usury 


laws,  419 ;  poor  laws,  447-51 ; 
relation  of  wages  to  capital, 
454  ;  factory  legislation,  467  ; 
its  strikes,  467  ;  progressivity  in 
taxation,  601 

English  School  of  Political  Econ- 
omy, so  called,  17  ;  erroneous 
views  of  English  economists  re- 
garding the  relation  of  wages  to 
the  product  of  industry,  32(i 

Entrepreneur  class,  the,  their  func- 
tion, 85,  231,  245  ;  as  claimants 
to  a  share  of  the  product  of  in- 
dustry, 252,  330-2,  Chap.  4, 
Part  IV,  also  474-82  ;  the  State 
as  entrepreneur,  577 

Equation  of  international  demand, 
153 

Equity,  political,  its  relation  to 
political  economy,  36 

Equities  of  contribution  to  the 
State,  583  [See  also  Taxation] 

Escheat,  as  a  source  of  State  reve- 
nue, 573 

Esprit  de  corps  in  industry,  84 

Ethics,  relation  to  economics,  19, 
36 

Exemptions  from  income,  prior  to 
taxation,  600-1 

Exchange,  the  old-time  theory 
that  it  could  be  beneficial  to  but 
one  party,  3;  arises  from  the  di- 
vision of  labor,  112,  236-7;  its 
reaction  upon  production,  Chap. 
7,  Part  III 

Exchange,  the  science  of,  this  term 
offered  as  a  substitute  for  Polit- 
ical Economy,  5-6 

Exchange,  as  a  department  of 
Political  Economy,  Part  III  ; 
how  distinguished  from  distribu- 
tion, 247-9 

Exchange,  (Trade)  International, 
Chap.  2,  Part  III 

Exchanges,  Foreign,  541-58  ;  rela- 
tion to  Bi-metallism,  563-5 

Exhaustion  of  the  soil,  56-8 

Expenditure,  as  the  basis  of  taxa- 
tion, 592-4 

Factory  laws,  471-3 

Faculty,  as  the  basis  of  taxation, 
59o-7 

Family,  the  formation  of,  386-7 ; 
solidarity  of,  390 

Fawcett,  H. :  insufficient  food  of 
West  of  England  laborers,  68, 


INDEX. 


529 


Cottier  rents  in  Ireland,  273n  ; 
differing  wages  in  different 
localities,  273  ;  the  doctrine  of 
the  Wage  Fund,  453n. 

Fecundity,  made  by  M.  Comte  a 
test  of  a  true  science:  does  politi- 
cal economy  bear  this  test  ?  25 

Fees,  as  a  means  of  revenue,  581 : 

Feudal  burdens  on  land,  how 
commuted  ?  498 

Fiat  money,  [See  Inconvertible 
Paper  Money] 

Final  utility,  131,  139 

Financiering,  as  a  banking  func- 
tion, 522 

Fines  and  forfeitures,, as  a  source  of 
revenue  to  the  State,  574 

Fittest,  survival  of,  [See  Sur- 
vival] 

Fixed  incomes,  relation  to  the 
multiple  standard,  464 

Food,  [See,  also,  Subsistence]  :  its 
relation  to  labor  power,  66  ;  the 
primary  form  of  capital,  87,  97. 

Force,  productive,  can  not  be  lost 
out  of  nature,  but  may  be  lost 
out  of  man's  reach,  56 

Forced  circulation,  generally  a 
characteristic  of  government 
paper  money,  207 

Forced  sales,  sometimes  caused  by 
usury  laws,  423 

Form-value,  46 

France  :  underfed  factory  hands, 
68 ;  repression  of  population, 
401  ;  progressivity  in  taxation, 
600-2 

Francis,  John  :  the  city  banks  of 
London,  526 

Free,  distinguished  from  gratuit- 
ous coinage,  195 

Free  trade  and  exhaustion  of  the 
soil,  56  ;  and  the  territorial  divi- 
sion of  labor,  57,  613-23  [See 
Protection  vs.  Freedom  of  Pro- 
duction, Part  VI.  ] 

French  economists  apt  to  confuse 
ethical  and  economic  reason- 
ing, 37  :  right  in  their  views  of 
the  relation  of  wages  to  the  pro- 
duct of  industry,  326n 

Fullarton,  J. :  the  theory  of  bank 
money,  224 

Gallatin,  Albert :  bank  money  be- 
comes a  sort  of  legal  tender, 
223n 


Gangs,  agricultural,  so-called,  in 
England  (children),  342 

Gamier,  Joseph  :  progressivity  in 
taxation,  600 

Genoa,  bank  of  (St.  George),  522 

Geometrical  ®«  arithmetical  pro- 
gression, 392-4 

George,  Henry,  his  "Progress  and 
Poverty,"  506-21 

Germany,  its  railroad   system,  577 

German  school  of  political  econo- 
my, so-called,  17 

Gibbon,  E.,  likens  money  to 
letters,  164 

Gilbert's  Act  (English  Poor  Laws), 
448-9 

Girdlestone,  Canon :  the  diet  of 
the  laborers  of  Devonshire,  68 

Girardin,  Emile  de :  voluntary 
contributions,  572n 

Gladstone,  Wm.  E.  :  his  Budget 
Speeches,  586n 

Glut,     [See  Overproduction] 

Gluttony :  regarded  by  Mr.  Mill 
as  a  perpetually  antagonizing 
principle  to  the  desire  of  wealth, 
21 

Gold  [See  Precious  Metals  ;  in  its 
relations  to  Silver,  see  also  Bi- 
metallism] 

Gouge,  Wm.  M.  :  the  'heory  of 
bank  money,  225 

Government,  as  producer  and  con- 
sumer, 357-60,  414-6  ;  its  revenue, 
and  the  means  of  obtaining  it, 
572-84 

Government  administration  of  pro- 
ductive property,  505,  576-7 

Grain,  as  money,  189-90 

Gratuity,  relation  to  value,  12-3 

Gratuitous,  distinguished  from  free, 
coinage,  195 

Greed,  often  antagonistic  to  the  en- 
lightened pursuit  of  wealth,  23, 
378 

Greenbacks,  so-called,  of  the 
United  States,  209,  211,  444 

Gresham's  Law,  181 

Ground  rents,  283 

Hallam,  H.  :  the  penal  code  of  Ire- 
land, 271 

Hamilton,  Alex.  :  the  danger  of 
paper  money  issues,  444n 

Hard  times,  so-called,  their  cause, 
235-42 

Harmonies,  the  economic,  344-6 


530 


INDEX. 


Harrison,  Fred'k ;  the  small  suc- 
cess of  productive  co-operation, 
434 

Harvesting,  subject  to  the  condi- 
tion of  diminishing  returns,  53n 

Hastings,  George  W.  :  necessity  of 
the  workhouse  test,  452 

Hazardous  risks  of  capital,  how 
compensated,  293-7 

Health  is  not  wealth,  though  per- 
haps better  than  wealth,  10 

Hearn,  Wm.  E. :  substitutes  the 
term  Plutology  for  Political 
Economy,  43 ;  explains  the 
former  idleness  of  the  Scottish 
people,  78 

Hebrews,  ancient,  usury  forbid- 
den, 417-8 

Higgling  in  the  market,  149-50 

Hoffmann,  J.  G.  :  the  literature  of 
taxation,  585 

Holland,  underfed  laborers,  68 

Hopefulness  in  labor,  as  an  element 
of  productive  powrer,  76-8 

Hunter  state,  the,  60 

Hiiskisson,  Wm.  :  repeal  of  the 
laws  against  combinations,  467 

Immobility  of  capital  and  labor 
[See  Mobility,  etc.] 

Income  as  the  base  of  taxation, 
[See  Revenue] 

Inconvertible  Paper  Money,  Chap. 
5,  Part  III 

Increment,  the  unearned,  of  land, 
257,  265,  493,  et  seq. 

India — the  efficiency  of  its  labor- 
ing population  contrasted  with 
that  of  England,  79 ;  increase 
of  population  and  condition  of 
the  people,  394  ;  possible  relation 
of  taxation  to  production,  415 

Indifference  of  the  rate  of  profits, 
a  doctrine,  373-80 

Indolence,  regarded  by  Mr.  Mill 
as  a  perpetually  antagonizing 
principle  to  the  desire  of  wealth, 
21 

Inflation  (money),  198-204,  213, 
219-20,  441-5  ;  tendency  to  infla- 
tion inhering  in  political  monev, 
439-45 

Inglis,  H.  :  the  city  houses  of  Ire- 
land in  1834,  70 

Injuries,  economic,  tend  to  remain, 
346-7 

Injustice,  only  becomes  a  subject 


for  the  consideration  of  the  econ- 
omist when  it  issues  as  an  eco- 
nomic force  influencing  the  ac- 
tions of  men  with  respect  to 
wealth,  36 

Institutions,  how  far  shall  they  be 
considered  by  the  economist  ? 
19 

Insurance  of  the  principal,  an  im- 
portant element  of  interest,  293 

Intellectual  elements  of  supply  and 
demand,  147 

Intelligence,  not  wealth,  9-10;  as  a 
source  of  productive  power, 
72-4 

Interest,  as  a  share  in  the  product 
of  industry,  252,  332-6,  368-9; 
Chap.  3,  Part  IV  [See  Usury 
Laws] 

International  Trade:  international 
values,  151-8 

International  distribution-of  money, 
176 

International  division  of  labor 
[See  Territorial,  etc.] 

Invention  facilitated  by  the  divis- 
ion of  labor,  82 

Ireland,  the  economic  mischiefs  of 
its  land  tenure  almost  irrespect- 
ive of  considerations  of  political 
equity,  36;  inadequate  shelter  of 
the  laboring  population,  70;  the 
"  starving  season,"  94;  rents:  re- 
lation of  the  landlord  and  tenant 
class,  271-4;  increase  of  popula- 
tion and  state  of  the  peasantry 
prior  to  the  famine,  394 

Irish,  their  traditional  idleness  at 
home  due  to  unfair  laws,  78 

Jarvis,  Edward  :  varying  viability 
of  the  several  nations  of  Europe, 
320 

Jevons,  W.  S.:  illustration  of  the 
descending  scale  of  utility,  131; 
but  one  price  for  a  commodity, 
132-3;  substitution  of  one  com- 
modity for  another,  in  use,  as 
affecting  price,  142n;  the  British 
coin,  180;  the  denominator  of 
value,  182;  advocates  a  tabular 
or  multiple  standard,  191,  463; 
repudiates  the  doctrine  of  the 
wages  fund,  326;  the  laissez 
faire  doctrine,  380;  the  law  of 
wages,  326;  the  dynamics  of 
wealth,  382n;  his  Money  and  the 


INDEX. 


531 


Mechanism  of  Exchange,  524n; 
government  interference  with 
labor,  349,  352,  471 ;  fluctuations 
in  the  value  of  gold,  1789-1874, 
440;  bi-metallism,  568 

Johnson,  S.  W.  Prof.:  on  the  re- 
newal of  the  soil  by  ' '  weather- 
ing "  and  nitrification,  59 

Johnston,  J.  F.  W.  Prof.:  the 
constituents  of  the  soil  taken 
away  in  the  crop,  56 

Knies,  Prof.:  his  classification  of 
values,  as  time-value,  place-value 
and  form-value,  46 

Knights  of  Labor,  Part  VI 

Kropotkin,  Prince  :  on  Anarchy, 
626 

Labor:  employed  in  agriculture 
subject  to  the  condition  of  di- 
minishing returns,  49-52  ;  not  so 
when  employed  in  mechanical 
industries,  53-4;  as  one  of  the 
three  primary  agents  of  produc- 
tion, Chap.  2,  Part  II:  varying 
efficiency  of  labor,  65-79;  divis- 
ion of,  80-4;  partial  immobility 
of  labor,  104;  relation  of  labor 
to  value,  119-24 

Laborer,  the,  as  a  claimant  to  a 
share  of  the  product  of  indus- 
try, 252;  Chaps.  5  and  6,  Part 
IV;  the  residual  claimant  upon 
the  product  of  industry,  322-86 

Laissez  faire,  the  doctrine,  344-52, 
380 

Land,  its  tenure,  how  far  of  con- 
sequence to  the  economist  ?  19, 
36;  one  of  the  three  primary 
agents  of  production,  47-8;  its  ca- 
pability of  increased  production, 
49-54;  influence  of  a  popular 
tenure  upon  population,  401  [See 
building  lots,  pastures,  water 
privileges,  wood  lots,  mines;  see 
also,  Nationalization  of  the  Land ; 
see,  also,  Chapter  on  Rent,  Part 
IV,  and  Attacks  on  the  Doctrine 
of  Rent,  Part  VI] 

Landlord,  the,  as  a  claimant  to  a 
share  in  the  product  of  industry, 
252,  Chap.  2,  Part  IV,  328-34, 
368-70 

Latin-Union,  so-called,  its  mone- 
tary league,  195,  571 

La\\-.  how  far  shall  they  be  con- 
sidered by  the  economist,  19 


Leave-them-as-you-find-them  rule 
of  taxation,  590 

Leslie,  T.  E.  Cliffe:  influence  of 
natural  theology  on  political 
economy,  35;  "influence  of  a 
popular  tenure  of  the  soil  upon 
population,  in  France,  401 

Liverpool,  Lord:  ancient  bankers, 
522 

Loans,  [See  Interest  and  Usury 
Laws] 

Locke,  John,  on  usury,  424 

Lotteries,  as  a  means  of  revenue  to 
the  State,  579 

Luxury,  ideas  of,  developed  in  the 
progress  of  society,  19 ;  its  ap- 
pearance in  human  societies, 
398-9 

Machinery  :  great  differences 
among  different  peoples  in  the 
capacity  of  using  it,  73-4  ;  intro- 
duction of  machinery  as  tending 
to  set  producers  and  consumers 
apart,  231-6 

Malthus,  T.  R.  :  the  law  of  popu- 
lation, 391,  395,  402 

Man,  the  economic,  21 

Manchester,  or  Laissez  Faire, 
school  of  economists,  348 

Mansfield,  Lord :  diffusion  of 
taxes,  606 

Manufactures :  not  subject  to  the 
condition  of  diminishing  returns, 
53-4  ;  plea  for  building  up  local 
manufactures  to  prevent  waste 
of  soil,  56-9  ;  relation  to  agricul- 
ture, in  new  countries,  618— 
23 

Market,  what  is  it  ?  134 

Market  price,  its  relation  to  nor- 
mal price,  139 

Marriage  :  early  marriages  in  Ire- 
land, 394  ;  discouraged  by  econ- 
omic desires,  397 

Marshall,  Alfred  and  Mary  Paley, 
Economics  of  Industry :  honesty, 
a  part  of  the  ' '  personal  wealth  " 
of  a  country,  9  ;  possible  savings 
of  Asia  and  England  contrasted, 
93n  ;  influence  of  "  plant "  on  the 
prices  of  commodities,  144n  ;  the 
course  of  speculation  and  the 
cause  of  panics,  232  ;  effect  upon 
accumulation  of  a  low  rate  of 
interest,  288n  ;  origin  of  business 
profits,  311 


532 


INDEX. 


Martineau,  Harriet :  effects  of  a 
premium  on  illegitimacy,  450 

Massachusetts  paper  money,  443 

Mastership  in  production,  85, 105-9, 
231,  239  [See  chapter  on  Profits 
in  Part  IV ;  also  article  Co- 
operation in  Part  VI] 

Materials,  the  third  form  of  capital, 
96-7 

May,  Sir  E :  the  English  Crown 
lands,  576n 

McCulloch,  J.  R.  :  varying  fer- 
tility of  soils,  254  ;  relation  of 
wages  to  profits,  337n  ;  wages 
and  cheap  food,  404 ;  govern- 
mental expenditure,  414 ;  effects 
of  an  increase  of  the  money  sup- 
ply, 445n ;  proposes  the  purely 
economic  theory  of  taxation,  583, 
605  ;  his  treatise  on  taxation  and 
the  funding  system,  586 

Measure  of  value,  so-called,  [See 
Denominator  of  Value] 

Mechanical  industry,  not  subject 
to  the  condition  of  diminishing 
returns,  53-4 

Medium  of  exchange,  money  serves 
as  the,  162 ;  how  about  paper 
money  ?  209 

Metals  as  money,  166 

Metals,  the  precious,  as  money, 
167  ;  the  irregularity  of  their 
production,  188-9,  440,  [See  also 
Bi-metallism  and  Multiple  Stan- 
dard] 

Middlemen  in  Ireland,  272 

Mill,  John  Stuart :  correctness  of 
the  popular  conception  of  wealth, 
6 ;  fails  to  observe  distinction 
between  wealth  and  property, 
15  ;  his  statement  of  the  premises 
of  the  Ricardian  school,  21 ;  he 
replies  to  Comte's  criticism  foun- 
ded on  the  consensus  of  the  social 
phenomena,  39  ;  recognizes  ex- 
change as  a  department  of 
political  economy,  llln;  the 
friction  of  retail  trade,  149  ;  the 
equation  of  international  de- 
mand, 153  ;  the  unearned  incre- 
ment of  land,  284,  497-500  ;  doc- 
trine of  the  wage  fund,  453 

Mines,  rental  of,  281 

Mints,  of  various  countries,  180n 

Mobility  of  capital  and  labor,  how 
far  secured,  104,  339-45 


Money,  Chaps.  3,  4,  5  and  6,  Part 
III;  interest  paid,  in  general,  not 
for  the  use  of  money,  but  of 
other  forms  of  capital,  286  [See, 
also,  Bank  Money,  Inconvertible 
Paper  Money,  Political  Money, 
Bi-metallism] 

Monometallism  [See  Bi-metallism] 

Monopolies,  as  a  source  of  revenue 
to  the  State,  578 

Monopoly  value,  121 

Moral  considerations,  how  far  do 
they  concern  the  economist  ?  19, 
36' 

Moral  elements  of  supply  and  de- 
mand, 147 

Mosaical  code,  prohibits  usury, 
417 

Mortgages,  are  they  wealth,  or  only 
property  ?  15 

Motives,  economic,  shall  all  be 
taken  by  the  economist,  or  only 
a  few  leading  motives  ?  16-22 

Multiple  standard,  for  deferred 
payments,  191,  459-64 

Napoleon,  avoided  the  use  of 
paper  money,  214 

"National"  Political  Economy, 
so-called,  32;  why  should  indus- 
trial correspond  to  political  enti- 
ties ?  615-6 

Nationalization  of  the  Land,  493- 
505 

Natural  Theology:  its  relation  to 
political  economy,  35 

Nature,  the  assumption  of  a  benef- 
icent constitution  of,  as  influ- 
encing the  pursuit  of  political 
economy,  35 

Nature,  human:  how  far  shall  the 
economist  seek  to  comprehend 
it,  and  include  it  in  the  premises 
of  his  reasoning  ?  16-22 

Neison,  Dr.:  varying  mortality  of 
the  several  trades  and  professions, 
320 

New  countries,  so-called,  why 
wages  are  high  in  them,  618- 
23 

Nicholte,  Sir  George  :  effects  of 
Gilbert's  act,  449 

Nitrification,  so-called,  as  a  means 
of  renewing  the  soil  subject  to 
culture,  59 

Nominal  «.«.  real  wages,  321 

Nominal  vs.  real  cost  of  labor,  321 


INDEX. 


533 


Normal  price:  its  relation  to  mar- 
ket price,  137-8 

Norman,  Geo.  Warde  :  the  theory 
of  bank  money,  225 

North,   Dudley:  free   coinage,  195 

Occupation,  change  of,  as  a  means 
of  relieving  the  labor  market, 
342 

Offices,  sale  of,  575 

One  price  only  for  a  commodity, 
132 

Opinion,  public:  influence  on 
wages,  353-4 

Organization  of  industry,  84-5  ;  as 
affecting  price,  144 

Ortes,  G. :  intimates  the  laws  of 
population,  395 

Over-production,  what  the  term 
means,  408-10 

Overstone,  Lord  :  the  theory  of 
bank  money,  225;  the  course  of 
speculation  and  over  trading, 
232;  fictitious  deposits,  422 

Panics,  the  causes  of,  232-3,  239  ; 
in  the  United  States,  243 

Paper  money  [See  Bank  Money 
and  Inconvertible  Paper  Money] 

Par  of  exchange  :  what  it  is,  543  ; 
between  gold-using  and  silver- 
using  countries,  561 

Parieu,  E.  de  :  the  literature  of 
taxation,  585;  the  diffusion  of 
taxes,  609 

Pastures:  relation  to  arable  lands, 
277 

Pastoral  state,  the,  61 

Pauperism,  446-52 

Perry,  A.  L.  Prof.:  doctrine  of 
the  indifference  of  the  rate  of 
profits,  373,  379;  doctrine  of  the 
wage  fund,  453 

Petty,  Sir  Wm. :  his  theory  of  tax- 
ation, 592 

Physiocrats,  the  French,  treated 
political  economy  as  an  art,  29  ; 
deemed  agriculture  the  sole 
source  of  wealth,  48  ;  their  the- 
ory of  taxation,  583 

Physiology  of  man,  how  far  of 
consequence  to  the  economist  ? 
16-20 

Picking,  or  selecting,  the  coin,  179 

Place-value,  46 

Plant,  so-called,  its  existence  as 
affecting  price,  144 

Plutolosry,    the    term    offered  by 


Prof.  Hearn  as  a  substitute  for 
political  economy,  43 

Political  economy,  its  character  and 
logical  method,  Part  I 

Political  money,  43945  ;  [See 
also,  Inconvertible  Paper  Money] 

Politics,  and  economics,  349 

Polo,  Marco :  the  Chinese  paper 
money,  206 

Poor  laws,  [See  Pauperism] 

Pope,  the,  as  a  capitalist,  572 

Population  increases  as  tribes  pass 
from  the  hunter  to  the  pastoral 
state,  and  again  as  they  initiate 
agriculture,  60-3;  relation  of  sub- 
sistence to  population, '  Chap. 
1-3,  Part  V  ;  effect  of  the  increase 
of  population  in  driving  culti- 
vation down  to  inferior  soils, 
51-4,  99,  257,  271-4  ;  [See,  also, 
The  Nationalization  of  the  Land, 
Part  VI 

Potato  philosophy  of  wages,  404 

Practical  men,  so-called  or  self- 
called,  their  readiness  to  assert 
their  opinions  on  economic  ques- 
tions, 41 

Prediction,  capability  of,  made  by 
M.  Comte  a  test  of  a  true  science, 
25 

Prejudices,  popular,  their  influ- 
ence on  political  economy,  40 

Premises  of  political  economy,  16- 
23 

Price,  relation  to  value,  115  ;  but 
one  price  for  a  commodity,  132  ; 
normal  and  market  price,  137-9  ; 
price  the  agent  in  the  inter- 
national distribution  of  money, 
176  ;  relation  of  rent  to  the  price 
of  land,  261  ;  to  the  price  of 
agricultural  produce,  262  ;  re- 
lation of  profits  to  the  price  of 
manufactured  produce,  311 

Price-current,  need  of,  182-3  ;  how 
about  paper  money  ?  210 

Price,  Bonamy,  objects  to  drop- 
ping the  word  wealth,  5  ;  depre- 
ciation not  a  necessary  result  of 
inconvertibility,  213 

Procreative  force,  the,  its  capa- 
bilities, 391-3  ;  its  persistence, 
394 ;  antagonized  by  economic 
desires,  397-401 

Production  of  wealth.  44  ;  Part 
II ;  modes  of  production,  46 ; 


534 


INDEX. 


agents  of  production,  47  ;  pro- 
ductive capability  of  a  commun- 
ity, Chap.  4,  Part  II  ;  reaction 
of  exchange  upon  production, 
Chap.  7,  Part  III  ;  reaction  of 
distribution  upon  production, 
Chap.  8,  Part  IV 

Producers  and  consumers,  their 
relations  and  possible  misunder- 
standings, Chap.  7,  Part  III 

Productive  co-operation,  [See  Co- 
operation] 

Production,  cost  of,  how  related  to 
value,  119-124,  151-8 

Profits,  of  the  entrepreneur,  his 
motive  in  production,  231,239  ; 
profits,  a  share  of  the  product  of 
industry,  252,  Chap.  4,  Part  IV; 
profits  and  rent  are  species  of 
the  same  genus,  307-10  ;  profits 
do  not  form  a  part  of  the  price 
of  manufactured  products,  311 ; 
are  not  obtained  by  deduction 
from  wages,  312 ;  doctrine  of 
the  indifference  of  the  rate  of 
profits,  373,379  ;  in  co-operation 
the  laborers  aim  to  secure  the 
entrepreneur's  profits,  376-7 

Progressive  taxation,  600-2 

Property,  relation  to  wealth,  15 

Protection  vs.  freedom  of  produc- 
tion, 611-23 

Protectionist  writers,  hold  that 
each  country  has  a  political 
economy  of  its  own,  32 ;  make 
much  of  the  exhaustion  of  the 
soil,  56-8  [See,  also,  Protection 
vs.  Freedom  of  Production] 

Purdy,  Fred.  :  variations  in  wages 
throughout  England,  356n 

Purveyance,  as  a  means  of  revenue, 
580 

Quasi  taxes,  578-81 

Quesnay,  M. ,  his  school  of  econo- 
mists, 29,  48 

Raguet,  Condy  :  bank  money  in 
the  United  States,  223,  225 

Railways  of  Germany,  577 

Real  vs.  nominal  wages,  319-20 

Real  vs.  nominal  cost  of  labor,  321 

Realized  wealth,  (taxation)  [See 
Wealth] 

Redeemability  of  paper  money, 
what  it  implies,  Chaps.  5  and  6, 
Part  III 

Registration  of  land,  the  require- 


ment adds  virtually  to  the  facility 
of  transfers,  351 

Rent,  as  a  share  in  the  distribution 
of  the  product  of  industry,  252, 
Chap.  2,  Part  IV  ;  its  relation  to 
the  price  of  land,  261  ;  its  rela- 
tion to  the  price  of  agricultural 
produce,  262  ;  tends  to  rise  with 
growth  of  population,  257,  289, 
497  ;  rent  and  profits  are  species 
of  the  same  genus,  307-10  ;  does 
rent  belong  in  equity  to  the  com- 
munity ?  284  [See  also  National- 
ization of  the  Land,  and  Attacks 
upon  the  Doctrine  of  Rent, 
Part  VI] 

Repercussion  of  taxes,  [See  Diffu- 
sion, etc.] 

Reserve,  specie,  of  bank  money, 
223 

Restriction,  so-called,  the  English, 
207,  444 

Retail  trade,  the  friction  of,  148-9 

Revenue  (individual),  as  the  basis 
of  taxation,  589,  591,  598 

Revenue  of  the  State,  572-84 

Ricardp,  David :  his  school  of 
political  economy,  22 ;  treats 
political  economy  as  a  science, 
not  as  an  art,  30  ;  his  views  on 
seigniorage,  197-200 ;  deprecia- 
tion not  a  necessary  result  of 
inconvertibility,  21 3n  ;  his  rela- 
tion to  the  doctrine  of  rent,  265  ; 
[See  also,  Attacks  on  the  Doctrine 
of  rent,  Part  VI]  relation  of 
wages  and  profits,  327  ;  the  in- 
cidence of  a  land  tax,  or  tax  on 
rents,  499 

Rogers,  J.  E.  T.  :  rents  in  Eng- 
land, 269 ;  wages  and  cheap 
food,  427n;  co-operation,  427n  ; 
the  insurrection  of  the  peasantry 
under  Richard  II,  469  ;  the  dif- 
fusion of  taxes,  607 

Roscher,  Wm.  :  definition  of  capi- 
tal, 87n ;  proportion  of  produce 
consumed  upon  the  farm,  112n  ; 
advocates  tabular  or  multiple 
standard,  191  ;  the  variety  of 
man's  economic  wants,  395n  ; 
his  reference  to  H.  C.  Carey,  487 

Russia,  the  efficiency  of  its  'labor- 
ing population  contrasted  with 
that  of  the  English,  76;  paper 
money,  443 


INDEX. 


535 


Safe  deposit,  as  a  banking  func- 
tion, 526 

Sanitary  conditions,  as  affecting 
the  efficiency  of  labor,  69,  70 

Saving  [See  Abstinence] 

Say,  J.  B.:  progressive  taxation, 
600  ;  diffusion  of  taxes,  607-8 

Scarcity  value,  121 

Schools  of  political  economy,  16- 

2o 

Science,  does  political  economy 
attain  this  dignity  ?  25  ;  distinc- 
tion between  political  economy 
as  a  science  and  as  an  art,  27-8 

Scotch,  once  an  idle  people,  78 

Scotland,  inadequate  shelter  of  the 
laboring  population,  70 

Seasons,  their  influence  on  regu- 
larity of  employment,  320 

Seigniorage,  Chap.  4,  Part  III 

Selecting,  or  picking,  the  coin, 
179 

Senior,  N.W.:  relation  of  value  to 
wealth,  7  ;  relation  of  gratuity 
to  value,  12  ;  relation  of  rights 
or  credits  to  wealth,  15  ;  distinc- 
tion between  political  economy 
as  a  science  and  as  an  art,  29  ; 
labor  not  essential  to  value,  120  ; 
money  is  "  abstract  wealth,"  184; 
opportunities  for  extra  earnings, 
319  ;  the  consumption  of  wealth, 
381  ;  relation  of  famine  to  war, 
395n  ;  the  order  of  succession  of 
human  desires,  396 ;  what  is  a 
luxury  ?  399  ;  his  statement  ^of 
the  law  of  population,  395 

Sentiment,  personal,  excluded 
from  definition  of  value,  7 ;  sen- 
timent and  political  economy, 
38 ;  sentiment  as  modifying  the 
influence  of  competition,  129 

Services,  distinguished  from  com- 
modities, 247  ;  services  of  the 
possessors  of  health,  skill, 
strength  and  intelligence  may  be 
the  subjects  of  exchange,  though 
those  qualities  can  not  be, 
9-10 

Settlement,  (parochial),  English 
law  of,  451 

Shelter,  its  relation  to  subsistence, 
384 

Shocks,  economic,  their  propaga- 
tion through  the  industrial  and 
commercial  body,  237-43 


Silver,  [See  Precious  Metals  ;  in  its 
relation  to  Gold,  see,  also,  Bi- 
metallism] 

Sismondi,  51.  :  rents  in  Tuscany, 
270  ;  influence  of  a  popular  ten- 
ure of  the  soil  upon  population, 
401 

Skill  is  not  wealth,  though  it  may 
become  the  means  of  acquiring 
wealth,  9-10 

Slave  labor,  the  cause  of  its  ineffi- 
ciency, 77 

Smith,  Adam  :  his  Wealth  of  Na- 
tions, effect  upon  the  relations 
of  States,  3 ;  treated  political 
economy  mainly  as  an  art,  30  ; 
his  economic  writings  influ- 
enced by  his  views  as  a  professor 
of  natural  theology,  35 ;  bank 
money,  223  ;  the  immobility  of 
labor,  340 ;  masters  always  in  a 
combination  not  to  raise  wages, 
468n ;  the  bank  of  Amsterdam, 
523 ;  voluntary  contributions  to 
the  State,  572 ;  inefficiency  of 
government  administration  of 
productive  property,  576 ;  his 
maxims  regarding  taxation,  586-9 

Social  dividend  theory  of  taxation, 
588 

Socialism,  624-33 

Sociology  :  its  relation  to  political 
economy,  39 

Soil,  the,  a  fund  for  the  endow- 
ment of  the  human  race,  55 

Soldiers,  their  services  economic  in 
England,  non-economic  in  Ger- 
many, 8 

Solidarity  of  the  family,  as  related 
to  natural  selection,  390 

Specie  reserve  of  bank  money, 
[See  Reserve] 

Speculation,  the  course  of,  232-3  ; 
the  speculating  class  and  their 
gains,  361-4 

Steuart,  Sir  James,  treated  political 
economy  as  an  art,  30 

Standard  of  deferred  payments, 
usually  called  standard  of  value, 
184-90  ;  how  about  paper  money  ? 
218-9 ;  how  about  bi-metallic 
money  ?  440-5,  [See  also  Multi- 
ple Standard] 

Statistician,  the  economic,  to  be 
distinguished  from  the  econo- 
mist, 34 


536 


INDEX. 


Stock,  influence  of  a  stock  of  a 
commodity  on  its  price,  13943 

Storage,  necessity  of,  as  affecting 
price,  143 

Strikes,  352,  468-70  ;  co-operation 
would  abolish  strikes,  430 

Structure  in  industry,  103-9 

Subsistence :  86-7,  94,  97,  453-5  ; 
in  its  relation  to  population, 
Chapters  1-3,  Part  V 

Substitution  of  one  commodity  for 
another  in  use,  as  affecting  price, 
142 

Successions,  limitations  upon  and 
taxation  of,  573 

Sumner,  W.  G.  Prof.  :  the  doc- 
trine of  protection,  614,  616 

Supply  and  demand,  125-140 ; 
(Money)  174 

Supply  is  not  equivalent  to  stock, 
140 

Survival  of  the  fittest,  how  far 
carried  out  in  the  human  family, 
390 

Sympathy  with  labor,  [See  Opin- 
ion, Public] 

Tabular  standard,  for  deferred  pay- 
ments, [See  Multiple  Stand- 
ard] 

Taxation,  its  place  in  political 
economy,  357-60;  Bentham'sand 
McCulloch's  view  of  taxation  as 
stimulating  production,  414-6; 
how  taxation  may  be  considered, 
582-4;  the  principles  of,  585-610 
[See,  also,  Quasi  Taxes] 

Territorial  division  of  labor,  83; 
the  protectionist  argument  for 
limiting  it,  611-6 

Theology,  natural:  the  proper  at- 
titude of  the  economist  towards 
it,  35 

Thompson,  Prof.  R.  E.:  exhaus- 
tion of  the  soil,  56 

Thornton,  Henry:  the  country 
banks  of  England,  525 

Thilnen,  J.  H.  von:  the  principle 
of  diminishing  returns  applies 
even  to  the  harvesting  of  crops, 
53n 

Titles,  sale  of,  575 

Time  value,  46 

Tocqueville,  A.  de:  sale  of  offices 
in  France,  575 

Tooke,  Thomas:  depreciation  not 
a  necessary  result  of  inconverti- 


bility of  paper  money,  21 3n;  the 
theory  of  bank  money,  224 

Tools,  the  second  form  of  capital, 
95;  their  importance  in  produc- 
tion, 98 

Torrens,  Robert  :  the  theory  of 
bank  money,  225 

Trades-Unions,  465-6  [See,  also, 
Knights  of  Labor,  Part  VI] 

Transportation,  in  its  relation  to 
rent,  259-60;  in  its  relation  to 
prices,  176 

Tributes  from  colonies,  dependen- 
cies and  conquered  nations,  574 

Truck,  473 

Turgot,  A.  R.  G. :  the  only  physio- 
crat who  treated  political  econ- 
omy as  a  science  ;  his  strictly 
scientific  method,  29 

Twiss,  Travers  :  the  potato  in  Ire- 
land, 404n 

Under-production,  what  it  results 
from,  407-10 

Under-consumption,  so-called,  409 

Unearned  increment  of  land  [See, 
Increment,  etc.] 

United  States:  the  laboring  popu- 
lation well  fed  and  well  shel- 
tered, 68-70;  capable  of  using 
delicate  and  intricate  machinery, 
75;  its  money,  223-5  [See;  also, 
Greenbacks];  panics,  243;  rents, 
268;  increase  of  population,  392; 
its  usury  laws,  419;  its  banking 
agencies,  528-9,  [see,  also,  the 
National  Banking  System,  Part 
VI  ]  ;  considered  with  reference 
to  the  question  of  protection, 
616-22 

Usury    and     usury    laws,    368-9, 

^417-25 

Utility,  how  related  to  value,  116; 
useful,  in  economics,  does  not 
mean  beneficial,  117  [See  Final 
Utility] 

Value:  related  to  wealth  as  attri- 
bute to  substance,  7;  defined,  8-9, 
114;  relation  to  price,  115;  to 
utility,  116-7;  is  it  a  momentary 
phenomenon  ?  118;  how  related 
to  labor,  119-24;  value  is  gov- 
erned by  the  relation  of  demand 
and  supply,  125;  the  value  of 
money,  169,  197-203,  212 

Voluntary  contributions  [See  Con- 
tributions] 


INDEX. 


537 


Wage  fund  theory,  327  [See,  also, 
Part  VI] 

Wages:  as  a  share  of  the  product 
of  industry,  252;  are  not  dimin- 
ished by  the  sums  received  by 
the  landlord  class  as  rent,  263, 
323;  or  by  the  sums  received  by 
the  employing  class  as  profits, 
312,  325;  the  law  of  wages, 
Chaps.  5  and  6,  Part  IV;  why 
wages  are  high  in  new  countries, 
618-23 

Walker,  Amasa :  the  theory  of 
bank  money,  22>;  co-operation, 
427n 

Warren,  W.  F. :  voluntary  contri- 
butions to  the  State,  572 

Waste  of  materials  (avoidable)  an 
important  element  in  production, 
72,  330-3 

Waste  of  soil,  256;  some  degree  in- 
evitable, 58;  its  relation  to  rent, 
278 

Water  privileges,  rent  of,  278 

Wealth:  the  subject  matter  of  po- 
litical economy,  1-3;  definition, 
4;  relation  of  wealth  to  value, 
7;  [See,  also,  throughout,  Capi- 
tal] ;  as  the  basis  of  taxation, 
604 

Weathering,  so-called,  as  a  means 


of  renewing  the  soil  subject  to 
culture,  59 

Welfare,  human,  not  the  subject 
matter  of  political  economy,  10 

Wells,  D.  A.  :  exemption  in  taxa- 
tion is  confiscation,  599 

Whately,  Richard:  popular  preju- 
dices aroused  by  political  econ- 
omy, 40;  substitutes  the  term 
catallactics  for  political  econ- 
omy, 43;  profits  a  species  of  the 
same  genus  as  rent,  306 

Whewell,  William  :  his  definition 
of  science,  25 

Wife,  the  relation  to  the  subsistence 
of  the  family,  386 

William  III,  of  England,  dissipates 
the  estates  of  the  crown,  576 

Wilson,  Dr. :  on  usury,  419 

Wilson,  James:  depreciation  not  a 
necessary  result  of  inconverti- 
bility of  paper  money,  21 3n;  the 
theory  of  bank  money,  224 

Wolowski,  Louis:  no  paper  money 
in  Poland,  206 

Wood  lots,  rent  of,  282 

Workhouse  test  of  pauperism, 
447-50 

Young,  Arthur:  "the  magic  of 
property,"  77;  expenditure  aa 
the  basis  of  taxation,  592 


THE   AMERICAN   SCIENCE  SERIES. 


THE  principal  objects  of  the  series  are  to  supply  the  lack — in 
some  subjects  very  great — of  authoritative  books  whose  princi- 
ples are,  so  far  as  practicable,  illustrated  by  familiar  American 
facts,  and  also  to  supply  the  other  lack  that  the  advance  of  Sci- 
ence perennially  creates,  of  text-books  which  at  least  do  not 
contradict  the  latest  generalizations.  The  scheme  systemati- 
cally outlines  the  field  of  Science,  as  the  term  is  usually  em- 
ployed with  reference  to  general  education,  and  includes 
ADVANCED  COURSES  for  maturer  college  students,  BRIEFER 
COURSES  for  beginners  in  school  or  college,  and  ELEMENTARY 
COURSES  for  the  youngest  classes.  The  Briefer  Courses  are  not 
mere  abridgments  of  the  larger  works,  but,  with  perhaps  a 
single  exception,  are  much  less  technical  in  style  and  more 
elementary  in  method.  While  somewhat  narrower  in  range 
of  topics,  they  give  equal  emphasis  to  controlling  principles. 
The  following  books  in  this  series  are  already  published: 

THE  HUMAN  BODY.     By  H.  NEWELL  MARTIN,  Professor  in 

the  Johns  Hopkins  University. 
Advanced  Course.     8vo.     655  pp. 

Designed  to  impart  the  kind  and  amount  of  knowledge  every 
educated  person  should  possess  of  the  structure  and  activities 
and  the  conditions  of  healthy  working  of  the  human  body. 
While  intelligible  to  the  general  reader,  it  is  accurate  and  suffi- 
ciently minute  in  details  to  meet  the  requirements  of  student? 
who  are  not  making  human  anatomy  and  physiology  subjects  of 
special  advanced  study.  The  regular  editions  of  the  book  contain 
an  appendix  on  Reproduction  and  Development.  Copies  without 
this  will  be  sent  when  specially  ordered. 

From  the  CHICAGO  TRIBUNE:  "  The  reader  who  follows  him  through 
to  the  end  of  the  book  will  be  better  informed  on  the  subject  of 
modern  physiology  in  its  general  features  than  most  of  the  medical 
practitioners  who  rest  on  the  knowledge  gained  in  comparatively  an- 
tiquated text  books,  and  will,  if  possessed  of  average  good  judgment 
and  powers  of  discrimination,  not  be  in  any  way  confused  by  state 
ments  of  dubious  questions  or  conflicting  views." 


2  THE  AMERICAN  SCIENCE   SERIES. 

THE  HUMAN  BODY.—  Continued. 

Briefer  Course.     121110.     364  pp. 

Aims  to  make  the  study  of  this  branch  of  Natural  Science  a 
source  of  discipline  to  the  observing  and  reasoning  faculties, 
and  not  merely  to  present  a  set  of  facts,  useful  to  know,  which 
the  pupil  is  to  learn  by  heart,  like  the  multiplication-table. 
With  this  in  view,  the  author  attempts  to  exhibit,  so  far  as  is 
practicable  in  an  elementary  treatise,  the  ascertained  facts  of 
Physiology  as  illustrations  of,  or  deductions  from,  the  two  car- 
dinal principles  by  which  it,  as  a  department  of  modern  science, 
is  controlled, — namely,  the  doctrine  of  the  "  Conservation  of 
Energy"  and  that  of  the  "  Physiological  Division  of  Labor. "  To 
the  same  end  he  also  gives  simple,  practical  directions  to  assist 
the  teacher  in  demonstrating  to  the  class  the  fundamental  facts 
of  the  science.  The  book  includes  a  chapter  on  the  action  upon 
the  body  of  stimulants  and  narcotics. 

From  HENRY  SEWALL,  Professor  of  Physiology,  University  of  Michi- 
gan: "The  number  of  poor  books  meant  to  serve  the  purpose  of 
text-books  of  physiology  for  schools  is  so  great  that  it  is  well  to 
define  clearly  the  needs  of  such  a  work:  I.  That  it  shall  contain  ac- 
curate statements  of  fact.  2.  That  its  facts  shall  not  be  too  numer- 
ous, but  chosen  so  that  the  important  truths  are  recognized  in  their 
true  relations.  3.  That  the  language  shall  be  so  lucid  as  to  give  no 
excuse  for  misunderstanding.  4.  That  the  value  of  the  study  as  a 
discipline  to  the  reasoning  faculties  shall  be  continually  kept  in  view. 
I  know  of  no  elementary  text-book  which  is  the  superior,  if  the 
equal,  of  Prof.  Martin's,  as  judged  by  these  conditions." 

Elementary  Course.     121110.     261  pp. 

A  very  earnest  attempt  to  present  the  subject  so  that  children 
may  easily  understand  it,  and,  whenever  possible,  to  start  with 
familiar  facts  and  gradually  to  lead  up  to  less  obvious  ones. 
The  action  on  the  body  of  stimulants  and  narcotics  is  fully  treated. 

From  W.  S.  PERRY,  Superintendent  of  Schools,  Ann  Arbor,  Mich.: 
<l  I  find  in  it  the  same  accuracy  of  statement  and  scholarly  strength 
that  characterize  both  the  larger  editions.  The  large  relative  space 
given  to  hygiene  is  fully  in  accord  with  the  latest  educational  opinion 
and  practice;  while  the  amount  of  anatomy  and  physiology  comprised 
in  the  compact  treatment  of  these  divisions  is  quite  enough  for  the 
most  practical  knowledge  of  the  subject.  The  handling  of  alcohol 
and  narcotics  is.  in  my  opinion,  especially  good.  The  most  admira- 
ble feature  of  the  book  is  its  fine  adaptation  to  the  capacity  of  younger 
pupils.  The  diction  is  simple  and  pure,  the  style  clear  and  direct,  and 
the  manner  of  presentation  bright  and  attractive." 


THE  AMERICAN  SCIENCE  SERIES.  3 

ASTRONOMY.  By  SIMON  NEWCOMB,  Professor  in  the  Johns 
Hopkins  University,  and  EDWARD  S.  HOLDEN,  Director  of 
the  Lick  Observatory. 

Advanced  Course.     8vo.     512  pp. 

To  facilitate  its  use  by  students  of  different  grades,  the  sub- 
ject-matter is  divided  into  two  classes,  distinguished  by  the  size 
of  the  type.  The  portions  in  large  type  form  a  complete  course 
for  the. use  of  those  who  desire  only  such  a  general  knowledge 
of  the  subject  as  can  be  acquired  without  the  application  of  ad- 
vanced mathematics.  The  portions  in  small  type  comprise  ad- 
ditions for  the  use  of  those  students  who  either  desire  a  more 
detailed  and  precise  knowledge  of  the  subject,  or  who  intend  to 
make  astronomy  a  special  study. 

From  C.  A.  YOUNG,  Professor  in  Princeton  College  :  "I  conclude 
that  it  is  decidedly  superior  to  anything  else  in  the  market  on  the 
same  subject  and  designed  for  the  same  purpose." 

Briefer  Course.     I2mo.     352  pp. 

Aims  to  furnish  a  tolerably  complete  outline  of  the  as- 
tronomy of  to-day,  in  as  elementary  a  shape  as  will  yield  satis- 
factory returns  for  the  learner's  time  and  labor.  It  has  been 
abridged  from  the  larger  work,  not  by  compressing  the  same 
matter  into  less  space,  but  by  omitting  the  details  of  practical 
astronomy,  thus  giving  to  the  descriptive  portions  a  greater 
relative  prominence. 

From  THE  CRITIC:  "  The  book  is  in  refreshing  contrast  to  the 
productions  of  the  professional  schoolbook-makers,  who,  having  only 
a  superficial  knowledge  of  the  matter  in  hand,  gather  their  material, 
without  sense  or  discrimination,  from  all  sorts  of  authorities,  and 
present  as  the  result  an  indigesla  moles,  a  mass  of  crudities,  not  un- 
mixed with  errors.  The  student  of  this  book  may  feel  secure  as  to 
the  correctness  of  whatever  he  finds  in  it.  Facts  appear  as  facts,  and 
theories  and  speculations  stand  for  what  they  are,  and  are  worth." 

From  W.  B.  GRAVES,  Master  Scientific  Department  of  Phillips 
Academy  :  "  I  have  used  the  Briefer  Course  of  Astronomy  during  the 
past  year.  It  is  up  to  the  times,  the  points  are  put  in  away  to  inter- 
est the  student,  and  the  size  of  the  book  makes  it  easy  to  go  over  the 
subject  in  the  time  allotted  by  our  schedule."  , 

From  HENRY  LEFAVOUR.  late  Teacher  of  Astronomy,  Williston  Semi- 
nary :  ''  The  impression  which  I  formed  upon  first  examination,  that 
it  was  in  very  many  respects  the  best  elementary  text-book  on  the 
subject,  has  been  confirmed  by  my  experience  with  it  in  the  class- 
room." 


4  THE  AMERICAN  SCIENCE  SERIES. 

ZOOLOGY,     By  A.  S.  PACKARD,  Professor  in  Brown  Univer- 
sity. 
Advanced  Course.     8vo.     719  pp. 

Designed  to  be  used  either  in  the  recitation-room 
laboratory.  It  will  serve  as  a  guide  to  the  student  who, 
desire  to  get  at  first-hand  a  general  knowledge  of  the  structure 
•of  leading  types  of  life,  examines  living  animals,  watches  their 
movements  and  habits,  and  finally  dissects  them.  He  is  pre- 
sented first  with  the  facts,  and  led  to  a  thorough  knowledge 
of  a  few  typical  forms,  then  taught  to  compare  these  with 
others,  and  finally  led  to  the  principles  or  inductions  growing 
•out  of  the  facts. 

From  A.  E.  VERRILL,  Professor  of  Zoology  in  Yale  College:  "  The 
general  treatment  of  the  subject  is  good,  and  the  descriptions  of 
structure  and  the  definitions  of  groups  are,  for  the  most  part,  clear, 
•concise,  and  not  so  much  overburdened  by  technical  terms  as  in  sev- 
eral other  manuals  of  structural  zoology  now  in  use." 

Briefer  Course.     I2mo.     334  pp. 

The  distinctive  characteristic  of  this  book  is  its  use  of  the 
abject  method.  The  author  would  have  the  pupils  first  examine 
and  roughly  dissect  a  fish,  in  order  to  attain  some  notion  of 
vertebrate  structure  as  a  basis  of  comparison.  Beginning  then 
with  the  lowest  forms,  he  leads  the  pupil  through  the  whole 
animal  kingdom  until  man  is  reached.  As  each  of  its  great 
divisions  comes  under  observation,  he  gives  detailed  instruc- 
tions for  dissecting  some  one  animal  as  a  type  of  the  class,  and 
bases  the  study  of  other  forms  on  the  knowledge  thus  obtained. 

From  HERBERT  OSBORN,  Professor  of  Zoology,  Iowa  Agricultural 
College  :  "  I  can  gladly  recommend  it  to  any  one  desiring  a  work  of 
such  character.  While  I  strongly  insist  that  students  should  study 
animals  from  the  animals  themselves, — a  point  strongly  urged  by 
Prof  Packard  in  his  preface, — I  also  recognize  the  necessity  of  a 
reliable  text-book  as  a  guide.  As  such  a  guide,  and  covering  the 
ground  it  does,  I  know  of  nothing  better  than  Packard's." 

First  Lessons  in  Zoology.     I2mo.     290  pp. 

In  method  this  book  differs  considerably  from  those  men- 
tioned above.  Since  it  is  meant  for  young  beginners,  it  de- 
scribes but  few  types,  mostly  those  of  the  higher  orders,  and  dis- 
cusses their  relations  to  one  another  and  to  their  surroundings. 
The  aim,  however,  is  the  same  with  that  of  the  others ;  namely, 
to  make  clear  the  general  principles  of  the  science,  rather  than 
to  fill  the  pupil's  mind  with  a  mass  of  what  may  appear  to  him 
unrelated  facts. 


THE  AMERICAN  SCIENCE  SERIES.  5 

ZOO  LOG  Y—Co nttnued. 

From  SCIENCE  :— The  style  is  clear,  and  the  subjects  made  interest- 
ing. The  student's  mind  is  not  confused  by  a  mass  of  details,  or  by 
unsatisfactory  descriptions  of  a  large  number  of  specimens  which  he 
can  never  expect  to  see,  much  less  examine;  but  the  brief  sketches  of 
a  few  of  the  most  important  forms  will  awaken  in  him  a  desire  for 
wider  knowledge.  The  figures  are  numerous,  averaging  almost  one 
to  each  page  ;  yet  they  are  so  well  selected  that,  while  one  grudges  so 
much  space,  he  finds  few  which  he  would  omit. 

BOTANY.     By  CHARLES  E.  BESSEV,  Professor  in  the  Univer- 
sity of  Nebraska. 
Advanced  Course.     8vo.    611  pp. 

Aims  to  lead  the  student  to  obtain  at  first-hand  his  knowl- 
edge of  the  anatomy  and  physiology  of  plants.  Accordingly, 
the  presentation  of  matter  is  such  as  to  fit  the  book  for  con- 
stant use  in  the  laboratory,  the  text  supplying  the  outline  sketch 
which  the  student  is  to  fill  in  by  the  aid  of  scalpel  and  micro- 
scope. 

From  J.  C.  ARTHUR,  Editor  of  The  Botanical  Gazette:  "The  first 
botanical  text-book  issued  in  America  which  treats  the  most  important 
departments  of  the  science  with  anything  like  due  consideration. 
This  is  especially  true  in  reference  to  the  physiology  and  histology  of 
plants,  and  also  to  special  morphology.  Structural  Botany  and  clas- 
sification have  up  to  the  present  time  monopolized  the  field,  greatly 
retarding  the  diffusion  of  a  more  complete  knowledge  of  the  science." 

Essentials  of  Botany.     i2mo.     292  pp. 

A  guide  to  beginners.  Its  principles  are,  that  the  true  aim  of 
botanical  study  is  not  so  much  to  seek  the  family  and  proper 
names  of  specimens  as  to  ascertain  the  laws  of  plant  structure 
and  plant  life ;  that  this  can  be  done  only  by  examining  and 
dissecting  the  plants  themselves;  and  that  it  is  best  to  confine 
the  attention  to  a  few  leading  types,  and  to  take  up  first  the 
simpler  and  more  easily  understood  forms,  and  afterwards  those 
whose  structure  and  functions  are  more  complex.  The  latest 
editions  of  the  work  contain  a  chapter  on  the  Gross  Anatomy 
of  Flowering  Plants. 

From  J.  T.  ROTHROCK,  Professor  in  the  University  of  Pennsylva- 
nia :  "  There  is  nothing  superficial  in  it,  nothing  needless  introduced, 
nothing  essential  left  out.  The  language  is  lucid  ;  and,  as  the  crown- 
ing merit  of  the  book,  the  author  has  introduced  throughout  the  vol- 
ume '  Practical  Studies,'  which  direct  the  student  in  his  effort  to  see 
for  himself  all  that  the  text-book  teaches." 


6  THE  AMERICAN  SCIENCE   SERIES. 

CHEMISTRY.     By  IRA  REMSEN,  Professor  in  the  Johns  Hop- 
kins University. 
Advanced  Course.     Svo. 

The  general  plan  of  this  work  will  be  the  same  with  that  of 
the  Briefer  Course,  already  published.  But  the  part  in  which 
the  members  of  the  different  families  are  treated  will  be  con- 
siderably enlarged.  Some  attention  will  be  given  to  the  lines 
of  investigation  regarding  chemical  affinity,  dissociation,  speed 
of  chemical  action,  mass  action,  chemical  equilibrium,  thermo- 
chemistry, etc.  The  periodic  law,  and  the  numerous  relations 
which  have  been  traced  between  the  chemical  and  physical 
properties  of  the  elements  and  their  positions  in  the  periodic 
system  will  be  specially  emphasized.  Reference  will  also  be 
made  to  the  subject  of  the  chemical  constitution  of  compounds,. 
and  the  methods  used  in  determining  constitution. 

Introduction  to  the  Study  of  Chemistry.     I2mo.     389  pp. 

The  one  comprehensive  truth  which  the  author  aims  to  make 
clear  to  the  student  is  the  essential  nature  of  chemical  action. 
With  this  in  view,  he  devotes  the  first  208  pages  of  the  book  to 
a  carefully  selected  and  arranged  series  of  simple  experiments, 
in  which  are  gradually  developed  the  main  principles  of  the  sub- 
ject. His  method  is  purely  inductive  ;  and,  wherever  experience 
has  shown  it  to  be  practicable,  the  truths  are  drawn  out  by 
pointed  questions,  rather  than  fully  stated.  Next,  when  the 
student  is  in  a  position  to  appreciate  it,  comes  a  simple  account 
of  the  theory  of  the  science.  The  last  150  pages  of  the  book 
are  given  to  a  survey,  fully  illustrated  by  experiments,  of  the 
leading  families  of  inorganic  compounds. 

From  ARTHUR  W.  WRIGHT,  Professor  in  Yale  College  : — The  student 
is  not  merely  made  acquainted  with  the  phenomena  of  chemistry,  but 
is  constantly  led  to  reason  upon  them,  to  draw  conclusions  from  them, 
and  to  study  their  significance  with  reference  to  the  processes  of 
chemical  action — a  course  which  makes  the  book  in  a  high  degree  dis- 
ciplinary as  well  as  instructive. 

From  THOS.  C.  VAN  NUYS,  Professor  of  Chemistry  in  the  Indiana 
University: — It  seems  to  me  that  Remsen's  "Introduction  to  the 
Study  of  Chemistry"  meets  every  requirement  as  a  text  or  class  book. 

From  C.  LES  MEES,  Professor  of  Chemistry  in  the  Ohio  University.- 
— I  unhesitatingly  recommend  it  as  the  best  work  as  yet  published  for 
the  use  of  beginners  in  the  study.  Having  used  it,  I  feel  justified  ii> 
saying  this  much. 


THE  AMERICAN  SCIENCE  SERIES.  "J 

CHEMISTRY— Continued. 

Elements  of  Chemistryi     12010.     272  pp. 

Utilizes  the  facts  of  every-day  experience  to  show  what  chem- 
istry is  and  how  things  are  studied  chemically.  The  language 
is  untechnical,  and  the  subject  is  fully  illustrated  by  simple  ex- 
periments, in  which  the  pupil  is  led  by  questions  to  make  his 
•own  inferences.  The  author  has  written  under  the  belief  that 
"a  rational  course  in  chemistry,  whether  for  younger  or  older 
pupils,  is  something  more  than  a  lot  of  statements  of  facts  of 
more  or  less  importance;  a  lot  of  experiments  of  more  or  less 
beauty ;  or  a  lot  of  rules  devised  for  the  purpose  of  enabling 
the  pupil  to  tell  what  things  are  made  of.  If  the  course  does 
not  to  some  extent  help  the  pupil  to  think  as  well  as  to  see  it 
does  not  deserve  to  be  called  rational." 

CHASE  PALMER,  Professor  in  the  State  Normal  School,  Salem,  Mass.: 
— It  is  the  best  introduction  to  chemistry  that  I  know,  and  I  intend  to 
put  it  into  the  hands  of  my  pupils  next  Fall. 

A.  D.  GRAY,  Instructor  in  Springfield  (Mass.)  High  School : — Neat, 
attractive,  clear,  and  accurate,  it  leaves  little  to  be  desired  or  sought 
for  by  one  who  would  find  the  best  book  for  an  elementary  course  in 
our  High  Schools  and  Academies. 

GENERAL  BIOLOGY,  By  WILLIAM  T.  SEDGWICK,  Professor 
in  the  Mass.  Institute  of  Technology,  and  EDMUND  B.  WIL- 
SON, Professor  in  Bryn  Mawr  College.  Part  I.  8vo.  193  pp. 
This  work  is  intended  for  college  and  university  students  as 
an  introduction  to  the  theoretical  and  practical  study  of  bi- 
ology. It  is  not  zoology,  botany,  or  physiology,  and  is  intended 
not  as  a  substitute,  but  as  a  foundation,  for  these  more  special 
studies.  In  accordance  with  the  present  obvious  tendency  of 
the  best  elementary  biological  teaching,  it  discusses  broadly 
some  of  the  leading  principles  of  the  science  on  the  substantial 
basis  of  a  thorough  examination  of  a  limited  number  of  typical 
forms,  including  both  plants  and  animals.  Part  First,  now 
published,  is  a  general  introduction  to  the  subject  illustrated 
by  the  study  of  a  few  types.  Part  Second  will  contain  a  de- 
tailed survey  of  various  plants  and  animals. 

W.  G.  FARLOW,  Pro fessor  in  Harvard  University,  Cambridge,  Mass.: 
— An  introduction  is  always  difficult  to  write,  and  I  know  no  work  in 
which  the  general  relations  of  plants  and  animals  and  the  cell-struc- 
ture have  been  so  well  stated  in  a  condensed  form. 


8  THE  AMERICAN  SCIENCE   SERIES. 

POLITICAL   ECONOMY.     By  FRANCIS  A.  WALKER,  President 

of  the  Massachusetts  Institute  of  Technology. 
Advanced  Course.     8vo.     537  pp. 

The  peculiar  merit  of  this  book  is  its  reality.  The  reader  is 
brought  to  see  the  application  of  the  laws  of  political  economy 
to  real  facts.  He  learns  the  extent  to  which  those  laws  hold 
good,  and  the  manner  in  which  they  are  applied.  The  subject 
is  divided,  as  usual,  into- the  three  great  branches  of  production, 
exchange,  and  distribution.  An  interesting  and  suggestive 
"book"  on  consumption  is  added,  which  serves  to  bring  in  con- 
veniently the  principles  of  population.  The  last  part  of  the 
volume  is  given  to  the  consideration  of  various  practical  appli- 
cations of  economic  principles. 

From  RICHMOND  MAYO  SMITH,  Professor  in  Columbia  College, 
N.  Y.: — In  my  opinion  it  is  the  best  text-book  of  political  economy 
that  we  as  yet  possess. 

From  WOODROW  WILSON,  Professor  in  Princeton  University,  N.  J.: 
— It  serves  better  than  any  other  book  I  know  of  as  an  introduction 
to  the  most  modern  point  of  view  as  to  economical  questions. 

Briefer  Course.     I2mo.    415  pp. 

The  demand  for  a  briefer  manual  by  the  same  author  for  the 
use  of  schools  in  which  only  a  short  time  can  be  given  to  the 
subject  has  led  to  the  publication  of  the  present  volume.  The 
work  of  abridgment  has  been  effected  mainly  through  excision, 
although  some  structural  changes  have  been  made,  notably  in 
the  parts  relating  to  distribution  and  consumption. 

From  ALEXANDER  JOHNSTON,  late  Professor  in  Princeton  Univer- 
sity, N.J.: — Using  the  "Briefer  Course"  as  a  text-book,  suited  to 
any  capacity,  lam  able  at  the  same  time  to  recommend  the  "Ad- 
vanced Course  "  to  those  who  are  better  able  to  use  it  as  a  book  of 
reference,  or  more  inclined  to  carry  their  work  further. 

Elementary  Course.     i2mo.     323  pp. 

What  has  been  attempted  is  a  clear  arrangement  of  topics; 
a  simple,  direct,  and  forcible  presentation  of  the  questions 
raised;  the  avoidance,  as  far  as  possible,  of  certain  metaphys- 
ical distinctions  which  the  author  has  found  perplexing ;  a  fre- 
quent repetition  of  cardinal  doctrines,  and  especially  a  liberal 
use  of  concrete  illustrations,  drawn  from  facts  of  common  ex- 
perience or  observation. 

HENRY  HOLT  &  CO.,  PUBLISHERS,  N.  Y. 


A    000  520  996    o 


